STATEMENT OF ASSURANCE

FEDERAL MANAGERS’ FINANCIAL INTEGRITY ACT FY 2008 STATEMENT OF ASSURANCE DEPARTMENT OF THE NAVY SUBJECT: Department of the Navy Annual Statement Required Under the Federal Managers’ Financial Integrity Act (FMFIA) of 1982 Table of Contents DESCRIPTION....................................................................................................................TAB Memorandum—Secretary’s Statement of Assurance Managers’ Internal Control Overall Process Evaluation Process..........................................A-1 Overall Process Managers’ Internal Control Program and Related Accomplishments.........A-2 Overall Process Material Weaknesses Listing; Uncorrected and Corrected .........................B-1 Overall Process Material Weaknesses; Uncorrected .............................................................B-2 Overall Process Material Weaknesses; Corrected this Period ...............................................B-3 Navy General Fund Material Weaknesses Listing; Uncorrected and Corrected. ..................D-1 Navy General Fund Material Weaknesses; Uncorrected…...................................................D-2 Navy General Fund Material Weakness; Corrected….. ........................................................D-3 Navy Working Capital Fund Material Weaknesses Listing; Uncorrected and Corrected.....E-1 Navy Working Capital Fund Material Weaknesses; Uncorrected….....................................E-2 Marine Corps General Fund Material Weaknesses Listing; Uncorrected and Corrected. ....F-1 Marine Corps General Fund Material Weaknesses; Uncorrected… .....................................F-2 THE SECRETARY OF THE NAVY W A S H I N G T O N . D . C . 20350-1000 .- August 28,2008 MEMORANDUM FOR THE SECRETARY OF DEFENSE SUBJECT: Annual Statement Required Under the Federal Managers' Financial Integrity Act (FMFIA) of 1982 As the Secretary of the Navy, I recognize the Department of the Navy (DON) management is responsible for establishing and maintaining effective internal controls to meet the objectives of the Federal Managers' Financial Integrity Act (FMFIA). I also recognize the Statement of Assurance over internal controls is intended to be a candid self-assessment of DON business processes. This document includes my assurances over the FMFIA Overall Internal Controls, as well as the Internal Controls over Financial Reporting (ICOFR) for the Navy General Fund, Navy Working Capital Fund and Marine Corps General Fund. FOCUS AREAS During this reporting cycle, I have specifically focused on areas critical to mission accomplishment and representative of current vulnerabilities or risk. Evaluation of internal controls in these areas has been fundamental to our efforts. Specifically: Acquisition Governance and Execution: The Department continues to be challenged in our governance and oversight of major weapons systems acquisition. Specifically, we must continue to improve the collection and use of cost and construction information to allow projects to be completed on-time and within budget. This report includes a material weakness on the use of Earned Value Management of major programs and our plan to bring lasting, positive change to the way the Department monitors acquisitions. Acquisition Workforce Development: Earlier initiatives to improve efficiency have included downsizing our acquisition workforce or in some cases, outsourcing the acquisition workload. During this time, the amount of goods and services being obtained through contractor support has increased, requiring greater government oversight of contracts. We are rebuilding our acquisition workforce to ensure we have the right numbers and skills available to manage work performed by our contract partners. This report includes a reportable condition related to acquisition workforce planning. Commands continue to develop and implement processes to determine staffing requirements and assign resources to meet an acquisition program's workload requirements throughout its life cycle. With appropriate internal controls in place, managers will have timely, shared information to provide reasonable assurance the adequate number, skill-mix, and experience of personnel will be available for future needs. Expeditionary Contracting: Current Naval commitments in support of.the Global War on Terrorism have led us to re-examine the unique challenges of contracting for goods and services outside the continental United States (OCONUS). During this period, I directed a comprehensive review of this area, conducted by our contracting, legal and audit communities. While we found dedicated professionals are working to support our mission, the review revealed weaknesses requiring both immediate and long-term actions. This issue continues to receive my personal attention, and has been a specific agenda item for leadership on my recent overseas travels. As such, we have included this area as a reportable condition in this year's report. Infrastructure Investment: Support for the DON'S 21'' century mission is dependent on a reliable, capable and secure information technology infrastructure. Two critical programs, Navy Marine Corps Intranet (NMCI) and Navy Enterprise Resource Planning (ERP), are the cornerstones of a significant investment in information technology, and senior leadership support is needed to ensure a good return. While two material weaknesses in the area of NMCI and Information Assurance measurement have been closed this year, we are including a reportable condition on the transition to NMCI's successor: Next Generation Enterprise Network (NGEN). We are currently addressing a noted lack of key information and measurements that would allow us to field an infrastructure of the quality and magnitude necessary to support the mission. Continuous Process Improvement (CPI): Underlying the Department's efforts to document and streamline business processes is our primary CPI enabler-Lean Six Sigma (LSS). LSS represents an integral part of our culture, not merely a standalone initiative. The principles of "Define, Measure, Analyze, Improve and Control" (DMAIC) are also the key elements supporting strong internal controls. Many of our most significant internal control accomplishments, reflected in TAB A, are based on LSS projects. Notably, the Marine Corps Logistics Command Maintenance Center Barstow implemented a LSS project to reduce cycle time and improve the quality of their Amphibious Assault Vehicle Depot Production Line. This effort received honorable mention in the DoD's semi-annual Check It competition, but more importantly, directly supports the warfighter. FORM AND CONTENT The information in this Statement of Assurance is largely a result of self-reporting of both control deficiencies and accomplishments by DON commands and subordinate activities. TAB A-1 describes how the DON conducted the assessment of internal controls for the FMFIA Overall Internal Control process, consistent with Office of Management and Budget Circular A-123, "Management's Responsibility for Internal Control." There has been a notable increase in self-reporting due to a heightened understanding of the importance of internal controls and the intent of the FMFIA and the Managers' Internal Control (MIC) Program. Additionally, we recognize the complementary role of government internal review organizations, such asthe Naval Audit Service, the Inspector General Offices and the Naval Criminal Investigative Service, in providing ongoing oversight and related feedback. TAB A-2 highlights the significant accomplishments of our Navy and Marine Corps team. In addition to accomplishments in the focus areas addressed above, I would like to highlight two additional areas of interest. The DON has continued to expand its Wounded Warrior Program, providing medical and non-medical case management and assistance to wounded or ill Marines and Sailors. These services include medical health screening, family support programs and other practices supporting comprehensive care for recovery, rehabilitation and reintegration of warriors. Safety continues to be one of my top concerns and we continue to take steps to improve safety, reduce risks and mitigate the impact that accidents have on our readiness. In Fiscal Year (FY) 2008, in coordination with the Motorcycle Safety Foundation and Commandant of the Marine Corps (Safety Division), the Navy developed the Military Sport Bike Rider Course (MSRC). This course is providing sailors and Marines with the knowledge and skills needed to operate motorcycles safely, and is being adopted by the other services. The DON FMFIA Overall evaluation identified material weaknesses, described in TAB B. As of the date of this memorandum, I am able to provide a qualified statement of reasonable assurance the DON internal controls meet the objectives of the FMFIA Overall program's administrative and operational activities with the exception of eight material weaknesses, six of which are targeted for completion within the next six months. TAB B-1 is a list of material weaknesses that still require senior management attention and timely corrective action. TAB B-1 also lists those weaknesses closed during the period. TAB B-2 contains the individual narratives for each uncorrected material weakness listed in TAB B-1. TAB B-3 contains the individual narratives for two material weakness closed during the period: Navy Marine Corps Intranet (NMCI) Network Performance and Capabilities, and Information Assurance Federal Information Security Management Act (FISMA) Metrics. INTERNAL CONTROLS OVER FINANCIAL REPORTING (ICOFR) The DON remains committed to improving the quality of our financial information and ultimately achieving audit readiness. Beginning in FY 2006, in response to the addition of Appendix A to the Office of Management and Budget (OMB) Circular A-123, we increased our emphasis on the documentation and testing of internal controls over financial reporting. As of June 30,2008, not all significant internal controls over financial reporting have been tested and as a result, we are unable to determine their operating effectiveness. Further, the DON'S evaluation of Internal Controls Over Financial Reporting (ICOFR) identified several weaknesses requiring corrective action. Consequently, I am unable to provide assurance Navy General Fund and Navy Working Capital Fund controls are established and operating effectively. .- The Navy General Fund weaknesses are described in TAB D. TAB D-1 is a list of material weaknesses that still require corrective action as well as those closed during the period. TAB D-2 contains individual narratives for the uncorrected material weaknesses listed in TAB D-1. TAB D-3 is a narrative for the prior period material weakness closed in this period. The Navy Working Capital Fund weaknesses are described in TAB E. TAB E-1 is a list of material weaknesses that still require corrective action. TAB E-2 contains individual narratives for the uncorrected material weaknesses listed in TAB E- 1. In N 2008, the DON Financial Improvement Program (FIP), a supporting initiative of the Office of the Secretary of Defense (OSD) Financial Improvement and Audit Readiness (FIAR) plan, made significant progress toward the goal of audit readiness by continuing to document financial processes, assess risks, and test internal controls. During the current reporting cycle, the DON FIP: Completed independent control testing of USMC business processes as a step towards auditing the Statement of Budgetary Resources. Completed validation of Naval Research Lab business processes as a step towards asserting audit readiness. . Electronically linked receipts to accounting transactions as a step towards remediating a weakness in recording accounts payable. Completed testing of (1) civilian pay processes at two commands, (2) all environmental liabilities except BRAC, and (3) collections and disbursements processed by DFAS. As a result of these and similar efforts in FY 2008, the DON expects to assert audit readiness over 29% of its General Fund assets and 66% of its General Fund liabilities in N 2009. The Marine Corps, a subsidiary reporting entity within the DON, has strengthened financial and business practices to improve the accuracy, timeliness and reliability of reported financial information. Through recently concluded internal control assessments, the Marine Corps is able to highlight financial and business practice reliability for much of the Balance Sheet and Statement of Budgetary Resources. The scope of testing and the degree of confidence achieved also demonstrate steady progress towards asserting audit readiness in N 2009. Therefore, I can provide a qualified statement of assurance internal controls over financial reporting are in place and effective for the Marine Corps General Fund, with the exception of three material weaknesses. The Marine Corps General Fund weaknesses are described in TABF. TAB F-1 is a list of material weaknesses that still require corrective action. TAB F-2 contains individual narratives for the uncorrected material weaknesses listed in TAB F-1. SUMMARY The 2008 DON Statement of Assurance reflects improvements in the Department's internal control environment and activities from prior years. We recognize strong internal controls must be integrated into our overall efforts to improve the way we accomplish our mission and conduct business. Commands continue to utilize process improvement methodologies to make this management program more viable. The increased self-reporting activity and resulting transparency of the reporting process have served to ensure DON controls are reasonably sound and relevant to the overall DON mission. The DON will continue to emphasize internal controls in its operational and business processes to improve operating efficiency, promote good stewardship, enhance decision-making capability and comply with OSD policy. ~Z@?ZC& . Donald Winter Attachments: As stated MANAGERS’ INTERNAL CONTROL EVALUATION PROCESS Reporting Fiscal Year for the Department of the Navy (DON) The Department of Defense (DoD) has consolidated the Statement of Assurance (SOA) into the Agency Financial Report (AFR), accelerating the reporting submission date. The SOA provides an adequate and timely assessment of DON internal controls, and discloses Material Weaknesses identified during the 12 month period from July 1, 2007 to June 30, 2008. This established time frame allows the DON to obtain input from its Major Assessable Units (MAUs) and provides comprehensive plans and schedules to correct the identified weaknesses. Concept of Reasonable Assurance The DON senior management evaluated the system of internal accounting and administrative controls in effect during the Fiscal Year (FY) as of the date of this memorandum, according to the guidance in Office of Management and Budget (OMB) Circular No. A-123, “Management’s Responsibility for Internal Control,” December 21, 2004. The OMB guidelines were issued in conjunction with the Comptroller General of the United States, as required by the “Federal Managers’ Financial Integrity Act (FMFIA) of 1982.” Included is an evaluation of whether the system of internal accounting and administrative control for the DON is in compliance with standards prescribed by the Comptroller General. The objectives of the system of internal accounting and administrative control of the DON are to provide reasonable assurance that: • • • All program operations, obligations and costs are in compliance with applicable law; Funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or misappropriation; and Revenues and expenditures applicable to agency operations are properly recorded and accounted for, to permit the preparation of reliable accounting, financial and statistical reports and to maintain accountability over the assets. The evaluation of internal controls extends to every responsibility and activity undertaken by the DON and applies to program, administrative, and operational controls. Furthermore, the concept of reasonable assurance recognizes that (1) the cost of internal controls should not exceed the benefits expected to be derived, and (2) the benefits include reducing the risk associated with failing to achieve the stated objectives. Moreover, errors or irregularities may occur and not be detected because of inherent limitations in any system of internal accounting and administrative controls, including those limitations resulting from resource constraints, congressional restrictions, and other factors. Finally, projection of any system evaluation to future periods is subject to risk that the degree of compliance with procedures may deteriorate. Therefore, this statement of reasonable assurance is provided within the limits of the preceding description. A-1-1 The DON evaluated the system of internal control in accordance with the guidelines identified above. The results indicate that the DON’s system of internal accounting and administrative control during FY 2008, taken as a whole, provide reasonable assurance that the above mentioned objectives were achieved. Determination of Reasonable Assurance Status The accomplishments included in TAB A-2, as related to the Department of the Navy Objectives for 2008, along with financial process improvements, closure of audit report recommendations and self-reporting are the best indicators that internal controls are in place and effective. Success in achieving the Department’s objectives continues to increase the effectiveness of the entire Department, improve the lives of Sailors, Marines and all DON employees, and result in greater security for the Nation. As such, the Secretary of the Navy (SECNAV) has reasonable assurance that the system of management controls is operating as intended with the exception of the Material Weaknesses reported. The DON Managers’ Internal Control (MIC) Program is decentralized and encompasses shore commands and afloat forces. SECNAV, through the Under Secretary of the Navy (UNSECNAV) and the Assistant Secretary of the Navy (Financial Management and Comptroller) (ASN(FM&C)), is responsible for the overall administration of the MIC Program, which includes developing operational policies and procedures, coordinating reporting efforts, and performing oversight reviews. Primary responsibility for program execution and reporting resides with the 18 MAUs, which include the Assistant Secretaries of the Navy, the Chief of Naval Operations, the Commandant of the Marine Corps, Secretariat Staff Offices and other entities that report directly to the SECNAV or UNSECNAV. These MAUs provide SECNAV with their own annual MIC Certification Statements. These certification statements are used as the primary source documents for the Secretary's determination of reasonable assurance over internal controls. In addition, the DON’s Auditor General, in collaboration with the ASN(FM&C)'s Office of Financial Operations (FMO), is responsible for reviewing significant Department-level audit reports and identifying potential Material Weaknesses. The high degree of collaboration and communication between FMO’s MIC program coordinators and Naval Audit Service (NAVAUDSVC) has resulted in a consistent and comprehensive perspective on the DON’s internal control position. The DON managers’ internal self-assessments and an ongoing external perspective provided in previous program audits are the two major inputs to the DON SOA. Material Weaknesses The DON is committed to full disclosure of Material Weaknesses and to re-establishing effective controls in those specific areas. Based on the certification statements provided by the MAUs and the joint NAVAUDSVC/ASN(FM&C) evaluation process, there are three new weaknesses being reported in FY 2008 (Tab B-2): (1) Earned Value Management of Littoral Combat Ships (LCS) 1 and 2, (2) Marine Corps Small Arms Reporting, and (3) Contingency Planning (CP) and CP Testing Management. Additionally, there are five prior period weaknesses being reported in FY 2008 (Tab B-2) where either a plan of corrective action remains open or requires independent validation of completion: A-1-2 (1) Oversight of Earned Value Management (EVM) for Naval Acquisition Programs, (2) Management of Communications Security (COMSEC) Equipment, (3) Continuity Planning Program, (4) Safeguarding Personally Identifiable Information (PII), and (5) Management and Oversight of the DON Telecommunication Program. The DON is reporting two prior period weaknesses as corrected in FY 2008 (Tab B-3): (1) Navy Marine Corps Intranet (NMCI) Network Performance and Capabilities, and (2) Information Assurance Federal Information Security Management Act (FISMA) Metrics. While the MIC Program is an active, ongoing effort throughout the DON, senior leadership will review the status of current and potential Material Weaknesses on a quarterly basis. Additionally, the status of actions associated with these weaknesses is reported in the Department’s Strategic Management Review, a monthly update to the SECNAV. Reportable Conditions Reportable conditions are weaknesses that affect operations but are not deemed material to mission performance. Like all weaknesses, reportable conditions require corrective actions. As an example, a 2004 audit by the Government Accountability Office found that DoD was prone to the accumulation of unused airline tickets (UATs) for which refunds were not obtained. A recent follow-on audit by the NAVAUDSVC verified that the Commercial Travel Offices (CTOs) consistently monitor the usage of airline tickets over which they have visibility and effectively cancel and process those UATs for refunds. Furthermore, the NAVAUDSVC agrees that the actions taken by the DON, particularly the mandate to use Individually Billed Accounts (IBAs) to purchase airline tickets, will reduce the DON’s exposure to financial losses from non-refunded UATs, including unused paper tickets and unused tickets issued by airlines over which the CTOs do not have visibility. DON efforts are enhanced by the DoD’s mandate to use the Defense Travel System in lieu of legacy travel systems. The Department has seen a corresponding increase in spend volume from CBAs to IBAs since the IBA mandate in February 2008. Given this progress, the DON is removing the Reconciliation of UATs as a Reportable Condition; increased oversight, however, will continue. One FY 2007 Reportable Condition, Naval Safety Mishap Program, remains so in FY 2008 with progress toward mitigation of risks being noted. The remaining four conditions (Navy Small Arms and Weapons Program, Marine Corps Models to Determine Requirements and Budget for Ammunition, Select Reserve Billet Assignments and Anti-Terrorism/Force Protection Assessments) reported in the FY 2007 SOA are no longer deemed reportable, based on corrective actions that have been completed. Four new issues, Unliquidated Obligations (ULOs), Acquisition Staffing Planning, Contracting and Contract Management Outside the Continental United States (OCONUS) and Navy Marine Corps Intranet (NMCI Transition to Next Generation (NGEN), emerged during FY 2008 audits and management reviews. All Reportable Conditions will receive focused management attention where necessary throughout FY 2009. • Unliquidated Obligations: Numerous NAVAUDSVC audits, listed below, have identified control deficiencies in various commands’ adherence to DoD ULO guidance. The DoD Financial Management Regulation requires ULO balances to be reviewed at least once a A-1-3 year, including status of work, verification of requirement existence, and funds validation. Performing obligation reviews facilitates prompt identification of ULOs available for deobligation. Recovering ULOs can result in funds that can be put to other use. For example, NAVAUDSVC found 33 ULOs valued at $9.5 million associated with reimbursable orders not meeting the annual review requirement across four Marine Corps locations. All recommendations to the Commandant of the Marine Corps are targeted for completion by the first quarter of fiscal year 2009. Given the significant impact that ULOs have on the Department’s increasingly constrained resources, further audits are planned, and on-going corrective actions will be monitored closely. NAVAUDSVC Report N2007-0026, “Validity of Reimbursable Unliquidated Obligations at the Naval Engineering Command,” dated April 16, 2007 NAVAUDSVC Report N2007-0038, “Unliquidated Obligations for Support Services Contracts at Space Naval Warfare Systems Command,” dated May 31, 2007 NAVAUDSVC Report N2008-002, “Validity of Reimbursable Unliquidated Obligations at Marine Corps,” dated April 3, 2008 • Acquisition Staff Planning: Acquisition workforce staffing and training is a high-risk area for the DON systems commands. The NAVAUDSVC report listed below identified that weaknesses in the acquisition workforce could increase the risk of inadequate planning, procurement, and contract management, which can also increase the risk of fraud, waste, or abuse. Commands continue to develop and implement processes to determine staffing requirements and assign resources to meet an acquisition program’s workload requirements throughout its life cycle. However, controls such as annual staffing reviews need to be strengthened. With appropriate internal controls in place, managers will have timely, shared information to provide reasonable assurance that the adequate number, skill-mix, and experience of personnel will be available for future needs. NAVAUDSVC Report N2006-0036, “Acquisition Program Staffing and Management Control at Naval Air Systems Command,” dated July 18, 2006 • Contracting and Contract Management Outside the Continental United States (OCONUS): In FY 2008, the Secretary of the Navy chartered an Acquisition Review Team to conduct a thorough review of policies, strategies and internal controls related to acquisition activities at major OCONUS locations within the DON. The team found a generally positive control environment, with high-level interest and engagement of personnel. They did, however, note specific control deficiencies and high-risk areas to include: personnel qualifications, turnover, over-reliance on foreign nationals and thirdcountry nationals and difficulty in conducting background investigations. Additionally, they noted insufficient legal and Naval Criminal Investigative Service personnel at OCONUS locations. The team has proposed numerous solutions, which are currently being implemented. DON senior management will continue to monitor internal controls related to OCONUS acquisition to ensure that it is carried out effectively in support of the mission and in compliance with the law. Naval Safety Mishap Program: Internal controls related to safety continue to be of paramount concern to DON leadership. In FY08, the Navy is experiencing its best year ever in the category of Total Military Operational Fatalities resulting from such programs as their A-1-4 • Military Sport Bike Rider Course (MSBRC) and the Hazard Reporting Working Group, which has served to reduce Afloat Class A Mishaps by 38% from the FY02 baseline year. Modest reductions have also been achieved in Total Class A Operational Mishaps, down 6%, and Personal Motor Vehicle (PMV) Fatalities which are down 8%. However, three mishap categories have increased rates compared to the FY02 baseline. Aviation Class A Flight Mishaps are up 6%, Off-Duty/ Recreational Fatalities are up 9% and Shore Operational Class A Mishaps are up 313%. The Navy must continue to strengthen controls in the years ahead if it is to meet the mishap reduction goals set for FY 2012. This issue was self-reported in FY 2007 and FY 2008. • Navy Marine Corps Intranet (NMCI) Transition to Next Generation Enterprise Network (NGEN): The current Navy Marine Corps Intranet (NMCI) contract comes to an end on 30 Sept 2010. The NMCI is a services contract that provides Information Technology (IT) infrastructure, operations, and end user computing devices and services for greater than 700,000 members of the Department of the Navy within the continental United States and at selection locations overseas. The follow-on to NMCI will be the DON Next Generation Enterprise Network (NGEN). It is critical that the transition from NMCI to NGEN be seamless and that all users are provided continuity of their current services and capabilities. The NMCI service provider, Electronic Data Systems (EDS), owns all of the IT assets associated with the NMCI infrastructure. These assets include, but are not limited to, items such as servers, laptop and desktop computers, mobile computing devices, network transport wiring, routers, switches, firewalls, facilities improvements, and third-party software licenses. In addition, EDS asserts there is a significant amount of Intellectual Property (IP), which they own, that is required to successfully operate the NMCI network and its related processes. The contingent liability associated with EDS’ ownership of all NMCI IT assets and IP presents a significant risk to the Department’s requirement to seamlessly transition from NMCI to NGEN. In addition to reporting Material Weaknesses and Reportable Conditions, the DON MIC Program continues to internally use two additional categories to describe and manage potential control deficiencies: (1) Areas of Continuing Concern are broad areas where management has reasonable assurance that controls are in place and functioning, but should continue to be highlighted for their potential risk of fraud, waste and mismanagement, and (2) Items to be Revisited are issues that surface during the reporting period that highlight the potential for control deficiencies, but for which there is insufficient information to determine materiality. The MIC Program continues oversight of these categories to ensure senior management visibility and attention. FMFIA Over Financial Reporting As specified in DoD Instruction 5010.40, the DON has separate statements of assurance for FMFIA Over Financial Reporting. This document includes Material Weaknesses identified relating to the internal controls over financial reporting and the plans to correct them. Consistent with our current disclaimer opinion, and because of the complexity of our business processes and the limited extent of our control testing, we currently can provide no assurance on internal controls over financial reporting for the Navy General Fund or the Navy Working Capital Fund. A-1-5 The DON continues to make progress toward audit readiness through completion of Financial Improvement Program (FIP) milestones. Internal control documentation and testing, in compliance with Appendix A of OMB Circular A-123, provide critical elements to achieve and sustain audit readiness. However, Material Weaknesses in several DON FIP segments continue to exist. In TAB D, we note Material Weaknesses in the Navy General Fund financial reporting in: (1) Collections and Disbursements, (2) Procure to Pay Processes, (3) General Equipment, (4) Military Equipment, (5) Operating Materials and Supplies, and (6) Real Property. In FY 2008, we are reporting a prior period Material Weakness, Financial Reporting of Environmental Liabilities, as closed. Internal control testing has been accomplished in this segment, and we are on track to assert audit readiness at the end of the first quarter of FY 2009. In TAB E, we describe Material Weaknesses in the Navy Working Capital Fund financial reporting in: (1) Collections and Disbursements, (2) Procure to Pay Processes, (3) Inventory, (4) General Equipment, and (5) Real Property. In Tab F, we note three Material Weaknesses in the Marine Corps General Fund related to (1) Real Property, (2) Internal Use Software, and (3) Military Equipment. The Marine Corps, a subsidiary reporting entity within the DON, has documented and strengthened financial and business practices to improve the accuracy, timeliness and reliability of reported financial information. Through recently concluded internal control assessments, the Marine Corps is able to highlight financial and business practice reliability for material lines of the Balance Sheet and Statement of Budgetary Resources. The scope of testing and the degree of confidence achieved also demonstrate steady progress towards asserting audit readiness in FY 2009. Therefore, I can provide a qualified statement of assurance that internal controls over financial reporting are in place and effective for the Marine Corps General Fund with the exception of material weaknesses in financial reporting of real property, internal use software and military equipment. We recognize the complementary role of government internal review organizations such as the Naval Audit Service, the Inspector General Offices, and the Naval Criminal Investigative Service in providing areas where control deficiencies are likely. These control deficiency areas are highlighted to the MAUs for broad management assessment. The Material Weaknesses reported in this SOA reflect close cooperation with organizations providing oversight. As an example, the Naval Audit Service audits on Earned Value Management in major acquisition programs led one MAU to identify control deficiencies, resulting in two reported Material Weaknesses this reporting period. A-1-6 Points of Contact The DON points of contact for the MIC Program and issues dealing with Material Weaknesses reported in the DON’s FY 2008 Managers’ Internal Control Statement of Assurance are: • Mr. Mark Easton, ASN(FM&C)/Office of Financial Operations. Mr. Easton may be reached at (202) 685-6701, or by email at mark.easton@navy.mil. • Ms. Nancy McDermott, ASN(FM&C)/Office of Financial Operations. Ms. McDermott may be reached at (202) 685-6719, or by email at nancy.l.mcdermott@navy.mil. • Mr. Michael Moreau, ASN(FM&C)/Office of Financial Operations. Mr. Moreau may be reached at (202) 685-6708, DSN 325-6708, or by email at michael.moreau@navy.mil. A-1-7 MANAGERS’ INTERNAL CONTROL (MIC) PROGRAM AND RELATED ACCOMPLISHMENTS The most significant MIC Program and mission related accomplishments or process improvements achieved during fiscal year (FY) 2008 are highlighted in this section. These improvements relate directly to the Department of the Navy’s (DON) MIC Program, awards received, and the Department of the Navy Objectives for FY 2008 and Beyond. STRENGTHENING DON MANAGERS’ INTERNAL CONTROLS Throughout the year, the DON has improved and strengthened its MIC Program, not just at the highest levels of reporting, but throughout the Major Assessable Units (MAU) and further down the reporting structure to individual commands. The numerous MIC accomplishments reported in the 2008 MAU certification statements reflect this DON-Wide emphasis. ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER (ASN(FM&C)) Increased MIC Program Awareness: In 2008, the DON MIC team launched a marketing campaign to promote the program’s Statement of Assurance (SOA) Tool. As a result, 256 users created new accounts while approximately 420 users actively accessed the tool for reporting purposes – a 156 percent increase from FY 2007. Newly appointed MIC Coordinators from AAUSN, OGC, DON CIO, and CNO received program reviews and demonstrations of the SOA Tool. Orientation briefings were provided to NAVSEA Corporate Operations, and AAUSN assessable unit MIC coordinators. Tailored training was provided during three sessions of the Commander, Navy Installations Command (CNIC) Shore Station Senior Leader orientation program; and a MIC Case Study was developed for staff members of the Naval Postgraduate School. Presentations were also provided at MIC Conferences for DoD, the Marine Corps and BUMED. Marketing included articles published in The SOA Tool User Profiles Activated Arrow, a combined Financial Improvement Program (FIP)/MIC internal control 80 newsletter along with demonstrations of 70 60 relevant DON tools and sharing best practices 50 with MIC Program teams from Defense 40 Intelligence Agency, the Air Force Special 30 20 Operations Command and Space and the Air 10 Force Missile Defense Command. Other 0 marketing efforts involved updates to the MIC Manual to provide better flow and more MIC Year 2008 detailed instruction. Updates were also made to the MIC Program website, including a new DON MIC Posters page. Navy/Marine Corps-specific MIC Program posters were developed capitalizing on the FIP slogan “Know Your Business Control Your Future.” Finally, the MIC Requests Approved Nov Dec Jan A-2-1 May Jun Jul Aug Sep Oct Feb Mar Apr Community database was updated utilizing SOA and Self-Assessment Survey Tool user information, as well as returned e-mails and user requests from The Arrow. Statement of Assurance (SOA) Tool Upgrade: Based on user input and working group involvement, the MIC Program team undertook an upgrade of the SOA tool. New improvements allow MIC coordinators to send reports back to their originator for update. Also, administrators can now remove invalid records, such as tests used for training purposes, and outdated user accounts (determined by three years of inactivity). The upgrade included a user-friendly error reporting system that sends debug information to the developer via e-mail when an error occurs. The tool’s new versatility has resulted in a significant increase of participating commands, including the Naval Reserve Forces Command, Commander, Navy Installations Command, Military Sealift Command and the Marine Corps. Improved Coordination and Alignment of A-123, Appendix A with the DON Financial Improvement Program (FIP): The A-123 team’s ability to meet the FY 2008 schedule of deliverables required a collaborative approach to gathering information. The team aligned themselves with members from the FIP, Remediation Action Plan (RAP), and Audit Readiness Teams (ART) to map reported material weaknesses and to discuss each team’s respective focus areas. The A-123 team began reviewing all validation packages submitted by reporting commands. They reviewed process narratives, flow charts and control assessments for the various focus areas. Noted gaps, questions and other concerns were discussed with major command program representatives. The team proactively worked with the command program representatives to develop test plans, schedule testing and evaluate the results of tests performed. They also conducted benchmarking reviews of A-123 execution with the Departments of Energy and the Interior. The team coordinated with the ART to develop guidance for Level 3 (detailed quality assurance and compliance assessment) reviews, and applied the review techniques to all prior and incoming validation packages. COMMANDANT OF THE MARINE CORPS (CMC) MIC Program Risk Assessment Form: Training and Education Command’s (TECOM) Comptroller, Resource Analysis and Evaluation Branch developed a new Risk Assessment Form to enable its managers to conduct a more efficient and effective way of identifying both risks and assessable units. TECOM distributed the new Risk Assessment Form to TECOM headquarters, Training Command Formal Schools, and Education Command Professional Military Institutions. TECOM successfully: (1) identified management policies and performed risk assessments for both existing and newly established assessable units, and (2) analyzed/removed assessable units that were either redundant and/or no longer applicable to command mission or unit operation. MIC Program Auditor Training: The Marine Corps Non-Appropriated Fund Audit Service (MCNAFAS) is responsible for providing the Commandant, Commanders and Managers with independent and objective value-adding audits of Marine Corps non-appropriated fund instrumentalities (NAFI) and other entities, as directed by the Commandant. One of the Director’s MCNAFAS responsibilities is to ensure auditors receive sufficient training to complete the mission. The Director MCNAFAS and seven Regional Directors ensured all 57 auditors received proper and adequate training to be in compliance with the Yellow Book, and A-2-2 maintain the appropriate level of expertise to accomplish its mission. During the 12-month period of July 1, 2007 – June 30, 2008, MCNAFAS auditors received 2,999 hours of audit related training. Additionally, nine MCNAFAS auditors passed professional certification to include: Certified Internal Auditor, Certified Information Systems Auditor, Certified Fraud Examiner and Accreditation in Internal Quality Assessment/Validation. MARFORCOM MIC Training: Marine Corps Forces Command (MARFORCOM) provided essential MIC Training to ensure individuals – from assessable unit managers to senior staff officers – are familiar with the internal control process and specific command requirements. Two formal training sessions were conducted for the MARFORCOM Headquarters Staff. The sessions raised internal control awareness for senior leadership, identified and clarified MIC Program requirements, trained both new and experienced MIC participants, and acted as a forum for sharing lessons learned. In-depth follow-up sessions were held with several of the 16 Staff Divisions to apply training to their specific operations. MARFORCOM MIC coordinators and points of contact also completed the on-line DON MIC training available via Navy Knowledge On-line. CHECK IT CAMPAIGN Deputy Secretary of Defense England launched Phase Two of the Check It Campaign in October 2007 to biannually recognize DoD Components that have made significant improvements to their system of internal controls. The first competition was conducted in March 2008 and Marine Corps Logistics Command Maintenance Center in Barstow, California received an Honorable Mention for their Lean Six Sigma project to reduce cycle time and improve the quality of their Amphibious Assault Vehicle (AAV) Depot Production Line. The assembly process was severely impacted by the inability to accurately assess “in process” internal control data. End of process data reviews showed that costs and cycle times were well above the negotiated baseline, with higher than usual defects and rework. Value Stream Analysis indicated process steps were not being worked in a logical sequence, which increased the risk of inventory errors due to an inability to accurately plan and schedule parts for task being performed. The lack of a logical sequence also increased the internal rework levels. A-2-3 Analysis of historical data allowed the team to develop measurable success targets that aligned their process to the strategic goals of the organization. The internal controls provide performance data for trend analysis and help ensure the process is not only being sustained, but also improving continually. Validation is done on a daily basis and the information is used for planning and performing proactive tasks vice working reactively. USMC AAV Team receives award from the Honorable Gordon England, Deputy Secretary of Defense BUSINESS TRANSFORMATION ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER (ASN(FM&C)) Establishment of a DON Chief Management Officer (CMO) and the Business Transformation Council (BTC): ASN(FM&C) led DoN compliance with a Congressional mandate to establish a CMO and align with DoD efforts to similarly comply. ASN(FM&C) also coordinated a strategy with SECNAV and the Business Transformation Council for the CMO to manage DON Business Transformation and business operations. In February 2008, the SECNAV directed ASN(FM&C) to conduct a review of Business Transformation in DON and to make subsequent recommendations for compliance in this area with the FY 2008 Defense Authorization Act. In addition, ASN(FM&C) was asked to provide a strategy for future DON direction in Business Transformation. FMO, acting for ASN(FM&C), organized a working group of senior DON members to present findings and recommendations. In April, ASN(FM&C) reported the results to the DON BTC and then to the Secretary. The Secretary accepted the proposals – to appoint an Acting CMO, then develop a DON Strategic Management Plan. The Secretary also appointed ASN(FM&C) as Acting CMO for DON and as chair of the BTC. In response, ASN(FM&C) formed senior working groups to define the responsibilities of both the CMO and the BTC, to draft the first DoN Strategic Management Plan, and to develop a portfolio of DON Business Transformation initiatives. The groups are on schedule to present their recommendations before the end of FY 2008. In doing so, DON will have gone well beyond full compliance with Congressional requirements, aligning itself with DoD progress in managing Business Transformation. DON will be well-positioned for actively managing business operations/Business Transformation in FY 2009. A-2-4 Financial Compliance Assessment of Navy Enterprise Resource Planning (ERP) 1.0 and 1.0.1: The Financial Management (FM) Compliance Assessment commenced in October 2006 and ended in August 2007. The Office of Financial Operations (FMO) participated in all phases of the integrated system testing: Cycles 1, 2, 3 and User Acceptance Testing. Throughout testing, FMO collected and analyzed testing output in the form of screen prints to determine Navy ERP’s compliance with the Federal Financial Management Requirements (FFMRs). Overall Navy ERP is 98 percent compliant with FFMRs tested during this assessment, implying the system can properly record and report financial data that is timely and reliable by users and managers. Three defects were discovered, requiring the creation of workarounds and/or business process improvements to enable the Navy ERP system to maintain its financial compliancy status. Based upon this assessment and pending a successful data conversion and transition, Navy ERP is fully capable of meeting the financial management needs of its users and decision makers. The FM Compliance Assessment of Navy ERP Release 1.0.1 commenced in October 2007 and ended in February 2008. FMO participated in integrated regression testing for two groups of enhancements and reports each tested in three phases. Throughout testing FMO collected and analyzed testing output in the form of screen prints to determine Navy ERP’s compliance with the applicable FFMRs. Overall, the Navy ERP Release 1.0.1 is 100 percent Compliant with the FFMRs tested for this assessment. This indicates that ERP can properly record and report financial data that is timely and reliable by users and managers. A workaround is required for one requirement to fully meet compliance. Based upon this assessment, Navy ERP is fully capable of meeting the federal financial management requirements. Validation of Ending Legacy General Ledger (G/L) Balances (Sigma at NAVAIR) to Beginning Target G/L Balances (Navy ERP): A lesson learned from ERP pilot implementation, one of FMO’s goals is to ensure information converted to Navy ERP is representative of data in legacy systems and that the balances are auditable. An FMO/DFAS Conversion Reconciliation consisted of reviewing corporate trial balances and their corresponding G/L accounts to determine if information in Navy ERP represented the data converted over from NAVAIR’s legacy system. The FMO/DFAS Validation consisted of reviewing 1,796 trial balances for all of NAVAIR’s 21 appropriations, across all subheads and fiscal years FY2000 - FY2007. The FMO/DFAS Validation Team passed 99.95 percent (57,874) and failed .05 percent (27) of the G/L account balances. Of the 99.95 percent passed, only 309 G/L account variances were passed based on immaterially. Overall, the FMO/DFAS Validation was able to verify that the Sigma to Navy ERP data conversion process was successful. Portfolio Management of Financial Management Systems – Component Identification: Automated Information Systems (AISs) within the FM portfolio often consist of a number of smaller component applications – Terminal Emulators, Plug-Ins, Security Software and Reporting Tools – managed by the Enterprise Services (ES) Functional Area Manager (FAM). Often, the ES FAM has made unilateral decisions on these components that have a negative affect on the parent AIS. As a result, FMO issued an AIS component data call requiring DON management commands and activities to identify what current component applications are used by each of the AISs they manage, per configuration. FMO compiled the feedback, sorted it by both component application and parent AIS, and then provided it to the ES FAM. This A-2-5 coordination should help (1) preclude disapproval of required ES FAM components for FM AIS, and/or (2) allow the ES FAM to help direct the FM AIS owners on what components they should be using, if the current ones are in fact obsolete. FMO plans to continue to monitor these components and act as the go between for the ES FAM and the FM AIS owners. Portfolio Management of Financial Management Systems – Interface Identification: DON and the FM Community are undertaking a number of initiatives to improve overall business transformation. These include: (1) implementation of Navy ERP, (2) FAM portfolio management/reduction process, (3) DON CIO’s Architecture Development, and (4) DON's FIP effort. In each case, an understanding of interdependencies between our various business systems/applications is vital to knowing how data is processed (auditability) and what internal controls are in place to ensure accuracy. System reduction and Navy ERP implementation also require assurances that vital data links are successfully maintained or reconstituted with the replacement system. To identify these dependencies, FMO issued an interface data call to the major commands asking them to identify interfaces for each of their FM systems and applications. The response rate has been approximately 85 percent. The results will be used to identify FM functionality/dependencies residing in non-FM FAM systems/applications; this is important since the FM FAM often does not have visibility into portfolios of other FAMs. Furthermore, those financial feeder systems will need to be either converged into Navy ERP or made SFIS/FFMIA compliant. Portfolio Management of Financial Management Systems – Systems Metrics: FMO oversees the DON FM Automated Information Systems (AIS) portfolio. One of FMO’s major challenges is to orchestrate the compliance of the DON management commands to various AIS requirements: (1) identification and completion of the DoD Information Technology Portfolio Repository (DITPR), (2) delineation of FM AIS in the DON’s Information Technology (IT) budget, and (3) ensuring that FM IT systems have met Federal Information Security Management Act (FISMA) requirements. FMO has developed monthly metrics to monitor AIS compliance with DITPR registration, Budget Delineation, and FISMA compliance. These metrics – mostly in graphic form with supporting charts – highlight the status, per management command, in achieving required compliance levels. These metrics assist management commands to focus in on non-compliant systems and complete reporting requirements. Portfolio Management of Financial Management Systems – Systems Transition Plan: FMO issued a transition plan data call requiring DON management commands and activities to identify: (1) AISs used per location, and (2) migration strategies for each AIS. As a baseline for strategy, FMO provided the management commands a tentative Navy ERP deployment schedule. After compiling the migration strategies, FMO laid out the DON FM transition plan, per AIS, per management command and activity. FMO compared the compiled plans and with Life-Cycle End Dates in DITPR, working with management commands to reconcile where required. Next, FMO compared the DON FM Transition Plan and Life-Cycle End Dates with the corresponding DON FM AIS budget. Budgets in excess of transition plan/life-cycle end dates were reduced to bring in alignment. The systems transition plan has validated systems used by each command, ensuring adequate funding is available and helping them to migrate to new systems and plan for Navy ERP implementation. DON CIO has used it as a template for developing its own DON system transition plan. A-2-6 ASSISTANT SECRETARY OF THE NAVY, RESEARCH, DEVELOPMENT AND ACQUISITION (ASN(RD&A)) Successfully Executed ERP Release 1.0 “Go Live” at NAVAIR: The Navy ERP Program initiated its Financial and Acquisition Release 1.0 “Go-Live” to NAVAIR on 1 Oct 07 and successfully completed its transition to NAVAIR on December 21, 2007 with the accomplishment of the following: (1) Trained and Deployed to 14,265 users at nine sites; (2) instituted 14 web based courses and 65 instructor lead courses; (3) 99.8 percent Data Load success rate; (4) 21,000 test scripts executed; and (5) 13 million objects converted in Mock 5 testing (52.7 million across all mocks). Successfully Achieved Initial Operational Capability (IOC): As defined by CNO (Approved Navy ERP Capability Production Document, dated April 30, 2007), IOC for Navy ERP is achieved when Template I, Financial and Acquisition 1.0 Go-Live occurs (initial System Command deployment) and with the completion of the associated cutover plan. IOC includes the completions of: the development test period (DT/OT-B1); the transition period (data conversion, data validation, data reconciliation and catch-up); and system data loads into the ERP solution. Other IOC completion criteria include Interim Authority to Operate (Production and Alternate Data Site Environments, and the Disaster Recovery Site environment); completion of Milestone C; Help Desk set up; and end users at the initial site trained. On May 12, 2008, the Vice CNO declared that the Navy ERP program achieved its IOC. PROCESS IMPROVEMENT ASSISTANT FOR ADMINISTRATION TO THE UNDER SECRETARY OF THE NAVY (AAUSN) Development and Pilot Implementation of the Financial Management Base Realignment and Closure (BRAC) Management Control Tool (MCT): To track and resolve BRAC Unliquidated Obligation (ULO) balances, financial analysts had to manually reconcile multiple reporting and accounting systems. Vulnerabilities existed for possible human factor errors, resulting in arduous and time consuming reconciliation. AAUSN Financial Management Division (FMD) developed and led the pilot implementation of an Oracle-based application – the MCT – that interfaces with the STARSFL/HCM and SABRS financial management and accounting systems. MCT is middleware software that allows standard queries to generate unliquidated balances by UIC/subhead/job order number (JON) level within seconds. The MCT will enable activities to properly research, reconcile and resolve ULO balances; to accurately mitigate risks; and to ensure no obligations are incurred but not paid for, such as an account payable for items ordered or received but not yet paid for. Time and Attendance Vulnerability (AAUSN): AAUSN S/HHRO discovered vulnerability in the DON’s system for logging time and attendance (T&A) – SLDCADA. Data certified by a manager in the system could be subsequently changed without management approval in the DFAS Defense Civilian Pay System (DCPS) by employees that had access to DCPS. As a result, a management control report using a DFAS extract was created to monitor T&A reporting and to automatically flag activity that deviated from historical pay period data. A-2-7 ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER (ASN(FM&C)) Computer Based Instruction (CBI) Training Courses (FMB-5): Two CBI training courses were designed to deliver interactive, competency-based, and individualized instruction in a costeffective manner. A “FM 101” course was designed to provide a comprehensive guide/overview of financial management within the DON. The course content provides information on general financial management; the Planning, Programming, Budgeting & Execution (PPBE) process; key fiscal legislation; and general accountability. Understanding the process within the DON for establishing, requesting, and executing financial requirements within legal and regulatory constraints is key to successful achievement of DON program goals. To that end, the FM 101 course provides key financial management information for all DON personnel. The ADA Investigator Training course was developed as an introduction to the process of investigating potential violations of the Antideficiency Act. It is necessary for the DON ADA investigator to have the necessary tools to perform an ADA investigation and to further prepare and follow through with an ADA investigative report. ASSISTANT SECRETARY OF THE NAVY, RESEARCH, DEVELOPMENT AND ACQUISITION (ASN(RD&A)) DON Requirements and Acquisition Process Improvements: The Secretary of the Navy led senior Navy and Marine Corps leaders in a two-year comprehensive review of the acquisition process and the challenges the Department faces in executing programs. This review culminated in an improvement of the governance of the entire requirements and acquisition process for major programs and systems. The process provides senior leaders with a better understanding of the risks and costs occurring throughout the program’s development cycle and ensures alignment between service-generated capability requirements and acquisition, as well as improving the decision-making capability of senior leaders. Acquisition Program Baseline (APB) Compliance (PEO C4I): Twenty-nine percent of PEO C4I Program APBs were found in non-compliance, creating a negative cost, schedule, and performance impact on delivering PEO C4I products to the fleet. The DPEO for Acquisition Management established a goal to resolve 100 percent of FY05/06/07 non-compliance issues by September 30, 2008. To date, 86 percent of the FY05/06/07 APBs have been resolved and the overall non-compliance rate has been reduced to 14 percent. PEO leadership holds monthly meetings to monitor acquisition related performance metrics and the PEO is expected to reach 100 percent APB compliance of FY05/06/07 issues by September 2008. Common Information Technology (IT) Tools: PEO C4I Program Offices were using multiple IT solutions to maintain and share information, creating a negative financial impact by not allowing effective collaboration within the organization. PEO C4I implemented a common SharePoint-based IT tool, called the Systems Engineering Environment (SE2), designed to enhance information sharing across PEO C4I. This ASN(RD&A) CSHENG-sponsored collaboration tool enables sharing of information, templates, briefs, and information on current events across the PEO. Using SE2 has reduced IT costs, streamlined communications, enhanced consistency, and increased collaboration throughout the organization. A-2-8 Independent Cost Review (PEO C4I): The failure to conduct regular Independent Cost Reviews and to keep costs models current on Acquisition Category (ACAT) III/IV Programs resulted in a significant number of Acquisition Program Baseline deviations and/or breaches. These deviations/breaches caused unanticipated cost increases and delayed the program office from delivering products to the fleet as scheduled. The Deputy Program Executive Officer (DPEO) for Acquisition Management established a goal to conduct Independent Cost Reviews on at least 10 percent of the ACAT III/IV programs during FY 2008. To date, 44 percent of the ACAT III/IV programs (8 of 18) have been reviewed. The Independent Cost Reviews have allowed PEO to anticipate and mitigate any cost changes; program offices can remain on schedule in delivering services to the fleet. Maintenance of Navy International Programs Office (IPO) Strategic Plan / Revised Process for Allocating Foreign Military Sales (FMS) Administrative Funds (DASN IP): The Navy IPO Strategic Plan is a critical planning document that ensures all Navy activities are executing FMS and other security assistance matters in consonance with Combatant Commander priorities and overall Navy and DOD security assistance policies. Due to constrained FMS Administrative resources, it is critical that available funds be allocated in accordance with workload and strategic priorities. Navy IPO has continuously updated the Strategic Plan, thereby ensuring all FMS proposed sales and other security assistance actions reflect current policies and priorities. A process has been developed and refined that uses objective measures of workload as well as inputs from the Navy IPO Strategic Plan to efficiently allocate limited FMS Administrative funds. PEO Command, Control, Communications, Computers, Intelligence (C4I): PEO C4I Program Offices were using multiple IT solutions to maintain and share information, creating a negative financial impact by not allowing effective collaboration within the organization. PEO C4I implemented a common SharePoint-based IT tool, called the Systems Engineering Environment (SE2), designed to enhance information sharing across PEO C4I. This ASN(RD&A) CSHENG-sponsored collaboration tool enables sharing of information, templates, briefs, and information on current events across the PEO. Using SE2 has reduced IT costs, streamlined communications, enhanced consistency, and increased collaboration throughout the organization. Successfully Achieved Carnegie Mellon Software Engineering Institute (SEI) Capability Maturity Model Integration (CMMI) Level 3 (PEO EIS): CMMI is an integration framework to aid in enterprise-wide process improvement, and is sponsored by DoD, specifically the Office of the Under Secretary of Defense, Acquisition, Technology, and Logistics. Organizations from industry, government, and the SEI joined to develop the CMMI Framework, a set of integrated CMMI models, a CMMI appraisal method, and supporting products. On August 7, 2007, the Navy ERP Program Manager updated program policy to have the program implement and perform the Navy ERP Standard Process in compliance with CMMI-DEV Capability Level 3. This policy includes the use of the following compliance enforcement tools: (1) the performance management process - Government team members' performance appraisals will include verbiage to establish concrete goals and/or activities aimed at supporting the program-wide process improvement effort; and (2) CMMI compliance reviews and audits - The Navy ERP Independent Verification and Validation (IV&V) team will conduct CMMI compliance reviews and audits. A-2-9 CHIEF OF NAVAL OPERATIONS (CNO) Automation of the Overseas Screening Reporting System on BUPERS-On-Line (BOL): The Overseas Screening Reporting System on BUPERS-On-Line (BOL) was announced in NAVADMIN 085/07, introducing the creation and implementation of automation for the Overseas Screening Process. Navy Personnel Command (PERS-451) developed the application input process on BOL for those receiving overseas orders. Commands can now input the screening status into a database that permits the Transferring Command, Gaining Command, Detailers, BUMED, and PERS-451 to determine eligibility. This innovation is expected to greatly reduce the number of early returns and save the associated PCS costs, estimated in excess of $1 million per year. Body Composition Assessment (BCA) Certification Requirement for Navy Schools (COMNAVRESFORCOM): An increasing number of Sailors were being detached from schools prior to completing training because they did not meet the Body Composition Assessment (BCA) requirements delineated in the Catalog of Navy Training Courses (CANTRAC). This practice, fully within policy, resulted in wasted taxpayer dollars due to missed training opportunities and wasted travel dollars. N7 determined the most immediate, effective solution was to require the Unit or Naval Operational Support Center Commanding Officer to certify that any Sailor requesting a school meets BCA standards within 30 days of attending the course. Certification could be done using information from PRIMS (PARFQ) or via e-mail. If certification is not received, orders are not approved. Any Sailor sent home for BCA, even after being certified, indicates problems with the BCA program, and is addressed separately. This management practice does not place any significant extra workload on either the Sailor or chain of command because the information systems are already available; the reduction in wasted funds more than outweighs the small administrative burden. Centralized Recruiting and Hiring Initiative (ONI): The Director, Naval Analysis Directorate (ONI-2) implemented a strategy to streamline the directorate’s recruiting and hiring processes. By centralizing these functions, burden was lifted from individual work centers / supervisors and transferred to a small, well-trained pool of individuals that represented broad command needs. On the recruiting side, teams canvassed and screened potential recruits on a wide-range of criteria to identify those best suited for employment within the command. On the hiring side, teams reviewed and screened resumes, and recommended multiple hiring actions at one time. The initiative reduced individual hiring managers’ workload and resulted in higher throughput into the candidate pipeline. As a direct result, directorate manning rose from 90 percent to 97 percent - the highest within the command. The command’s overall manning also significantly improved, allowing the command to stave off potential billet cuts. Control and Detection of Assets Against Threats, Viruses and Security Risks (NAVAIR): Use of an Universal Serial Bus (USB) thumb drive loaded with spyware can disable a Navy/Marine Corps Intranet (NMCI) seat if the unauthorized software is detected during routine system scans. The Naval Air Warfare Center – Aircraft Division (NAWCAD) and NAWCAD Lakehurst Information Technology/Information Management (IT/IM) Departments implemented the use of Antivirus software to actively monitor, protect and defend network assets against threats, viruses and security risks. NAWCAD Lakehurst has employed a Host Based Security A-2-10 software suite. The suite identifies and blocks known threats in real time, and scans email / web traffic at the gateway to block malicious threats before they can enter a network. NAWCAD Lakehurst, IT/IM Competency also established a “wiping kiosk” for contaminated USB thumb drives and external hard drives: employees can have their mobile storage devices scanned and wiped of spyware software. Naval Special Warfare Reserve Component Operational Support Group: Operational Support Group (OSG), the Reserve Component (RC) supporting Naval Special Warfare (NSW), has not had a systematic approach to maintaining or supporting deployment cycles. To remedy this, OSG developed a first ever model to “operationalize” the RC NSW community. The model effectively transformed over 1,000 RC billets into a deployable NSW force with predictable and sustainable mobilization/deployment cycles. NSW Component has approved this transformation and reorganization initiative and is expected to direct its implementation via a pending Task Order to OSG by mid-summer 2008. Including its RC claimancy, OSG constitutes the second largest NSW Echelon III Command, with cognizance over a core Headquarters Staff, two Echelon IV Active Duty commands, 40 Reserve support units and 1,000 Active Duty and Reserve personnel. Out-of-Service Debt (BUPERS): OPNAV N10 FIP Team in coordination with Military Personnel, Navy (MPN) Accounting shop and the Defense Finance and Accounting Service (DFAS) was able to correct a discrepancy and collect approximately $20.8 million for MPN and $1.4 million for Reserve Personnel, Navy (RPN) Out-of-Service Debt that were erroneously being credited to the U.S. Treasury Miscellaneous Receipt Account. SPAWAR Clinger-Cohen Act (CCA): A SPAWAR CCA process guide, reissued in January 2008, providing a process-based view of the CCA review and certification process, has led to a more proactive management approach with reduced cycle time. CCA Compliance efforts have increased by 38 percent in FY 2008, with 13 certifications/confirmations completed as of June 1, 2008. Despite an increase in workload, customer satisfaction with compliance support has risen from 3.80 in FY 2007 to 4.15 in FY 2008 (based upon a 5-point scale). Customer overall time to complete CCA compliance confirmation has decreased from an average of 28 hours in FY 2007 to 22.5 hours in FY 2008. COMMANDANT OF THE MARINE CORPS (CMC) Environmental Compliance and Protection Manual (MCO P5090.2A) Update (CMC): The Environmental Compliance and Protection Manual Version A (MCO P5090.2A) was issued on July, 10 1998. This voluminous document provided policy and guidance to Marine Corps commands and installations, enabling them to meet increasingly stringent environmental requirements. Since then, new Federal, State, local, and DoD environmental laws, regulations, and policies and Presidential Executive Orders have been issued. In January 2008, the manual was revised to reflect changes and requirements of the Marine Corps Environmental and Natural Resources programs. Seven of 20 Chapters and four of 17 Appendices were completely rewritten; a new chapter on waste munitions and a new appendix were added. This revised policy document will support environmental compliance and conservation efforts and reduce risk to the Marine Corps mission through non-compliance with environmental requirements. A-2-11 Marine Corps Small Arms: The Naval Audit Service audit of Marine Corps Small Arms reported 8,323 delinquent in-transit shipments. A subsequent audit reported a quantity of 13,889 delinquent in-transit small arms. The ultimate goal was to establish a policy and process to reconcile all delinquent in-transit small arm shipments and establish a self-sustaining reconciliation effort for the future. The interim goal was to accurately account for the 13,889 delinquent in-transit shipments and reduce the quantity of delinquent in-transit shipments to a threshold of 1,000 by March 31, 2008. On March 31, 2008, only six of the 8,323 shipments and six of the 13,889 remained unreconciled. By April 22, 2008, the quantity for these two original audit reports was reduced to zero. NETWORKCAR Implementation (CMC): To obtain better operational data for assigned government vehicles, the Marine Corps recruiting districts implemented NETWORKCAR. A GPS monitoring device, NETWORKCAR allows the districts to detect operation conditions of a vehicle from a remote location. This automated surveillance provides managers with timely data on their fleet performance, allowing effective determination of how to reduce the total cost of fleet ownership. Surveillance automatically notifies a fleet manager if a vehicle reports a diagnostic trouble code. The capabilities of NETWORKCAR have reduced vehicle mileage, accident costs and paperwork processing time, as well as provided added security for a vehicle fleet. NAVAL CRIMINAL INVESTIGATIVE SERVICE (NCIS) Controls over Time and Attendance (T&A): Management reviews found supervisors were not always electronically certifying T&A of their employees, and that employees were making incorrect entries. Consequently, senior management began receiving biweekly reports on employees whose T&A was not electronically certified. These reviews, combined with agencywide control assessments, resulted in a reduction of manually certified records (1,300 to 100) and 1,000 hours of improperly charged leave time. OFFICE OF NAVAL RESEARCH (ONR) Internal Review of Outside Source of Funding (OSF) Documents (ONR): ONR accepts a wide variety of OSF funding from other DoD, DON and civilian agency components. In the past, ONR 08 found funding was accepted and executed that may have been inappropriate for the work or contract vehicle (self-reported as a material weakness). As a result, ONR 08 conducted internal training and issued a policy memo on the proper use of OSF. During 2008 ONR: (1) finalized documentation of the OSF process by designing a mechanism that contains a total view of OSF information, fosters transparency of information, and is easy for multiple codes to understand and use; (2) initiated electronic archiving of OSF funding documents to improve communications and the availability of financial management information to ONR employees worldwide; (3) developed a process to manage the successful implementation of OSF tracking and reporting for ONR; (4) created a procedure to include direct cite OSF in the ONR 08 execution website so the execution website tracks all data; and (5) developed two new OSF reports for reconciling and clearing expiring balances. Archiving and new reports complete the A-2-12 ONR OSF documentation process. Based on these actions, ONR has reported the material weakness as closed. Obligation Validations: DoD Financial Management Regulation (FMR), volume 3, chapter 8 dated September 2000, requires comptroller organizations to undertake tri-annual reviews on a certain number and type of obligation documents and aged outstanding commitments. Prior to that date, only unliquidated obligations had to be validated on a yearly basis. Due to manpower limitations and workload issues, in FY 2001, ONR submitted a Material Weakness (MW), entitled "Obligations Validation" documenting that it could not comply with the new regulation. In addition, the MW noted that ONR was not alone across Department Budget Submitting Offices in failing to complete tri-annual reviews and that the Navy Comptroller was taking the lead in developing a Navy-wide plan to address this systemic shortcoming. Naval Audit Service Audit Report N2004-0039, dated April 13, 2004, recommended that ONR correct this deficiency. Over the last several years, ONR 08 has expanded its efforts to perform structured unliquidated obligation reviews and has established processes to satisfy the majority of the confirmation statements identified in the FMR. In recognition of these achievements, the Naval Audit Service closed out its recommendation on May 8, 2008. In turn, ONR has reported the MW as closed. ONR Talent Management Program: Many ONR employees (baby boomers) will be retiring in the near future; competition for highly-skilled people in government and the private sector is expected to increase. To prevent mission failure due to gaps in required versus available talent, ONR has: • Launched an effort to identify critical workforce skills and competencies; • Established a Talent Management Board to identify and promote various options, such as full-time telework (virtual employees), to obtain and retain talent personnel; • Published a Career Development Handbook to assist employee development and growth; • Implemented an “ONR Academy of Learning Experience” to assist onboarding new employees; • Created a mentoring program as a method of knowledge transfer and increasing diversity; • Established a Leadership Development Program to support succession planning; and • Identified rotational assignment opportunities to allow employees to gain external experience while retaining them as ONR employees. DON INTERNAL CONTROLS OVER FINANCIAL REPORTING ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER (ASN(FM&C)) DON Financial Improvement Program: The DON FIP is a course of action directed towards achieving an unqualified audit opinion for the DON Annual Financial Statements. A dedicated team within the Office of Financial Operations (FMO) maintains the DON FIP and coordinates execution of the plan. The DON FIP team's primary objectives are the identification and implementation of corrective actions to resolve "known" deficiencies related to the DON Annual Financial Statements and the preparation, documentation, and validation of processes, data, and A-2-13 systems that materially affect the DON Annual Financial Statements. The FIP team’s 2008 accomplishments include: • Review of Cash and Other Monetary Assets Held CONUS and OCONUS Receives Positive Results – The Cash and Other Monetary Assets Assertion Package was completed in June 2007 and approved by the Office of the Undersecretary of Defense (Comptroller) in December of 2007. The DoDIG scheduled Disbursing Officer cash audits for both OCONUS and CONUS activities, which evaluated the design and operating effectiveness of internal controls as well as the information contained in the Assertion Package submitted by Navy FMO. The DoDIG has completed fieldwork for both the OCONUS and CONUS reviews. The draft report for the OCONUS review, submitted to Navy FMO for comment, identified internal control weaknesses in the management of cash and areas for improvement; the report did not cite any significant misstatements of the balance as reported. The Navy Disbursing Operations are strengthening internal controls to mitigate the noted weaknesses. The DASN (FMO) has been briefed on the review of Cash and Other Monetary Assets held CONUS and received a discussion draft report. The discussion draft noted similar internal control weaknesses as reported OCONUS, but did not cite any significant misstatements of the balance based on the internal control work performed. The Environmental Liabilities Weapons Systems Assertion Attestation Engagement Yields No Material Misstatement – The DON asserted financial statement audit readiness for Environmental Liabilities Weapons Systems on December 31, 2006. The assertion was based on an assertion package generated by NAVSEA documenting the disposal estimation process for active and inactive DON ships. DoDIG initiated an Attestation Engagement in March 2007 to test the design and operating effectiveness of internal controls, as well as the balance reported on the Department's Financial Statements. DoDIG has completed fieldwork and submitted a draft report for comment to FMO and NAVSEA. The report noted an understatement of $21 million on a $13.4 billion balance, which falls well below the materiality threshold for the Environmental Liabilities line item. While internal control issues were noted, the balance reported on the financial statements is materially correct as verified by the testing conducted by DoDIG. In addition, NAVSEA is in the process of improving internal controls based on the issues identified to improve the accuracy of data and the presence of internal controls moving forward. Civilian Pay Testing – DON leveraged the high-level civilian pay process flow and risk analysis produced from a facilitated session to identify 13 key controls within the civilian pay process. Once key controls were identified, DON produced a work plan detailing strategy and rationale for testing. CNIC and ONI used the work plans to guide their respective Commands through testing. The Deputy Comptroller of ONI certified that all the key controls ONI is responsible for are operating effectively except for one. CNIC is initiating corrective actions based on the results of their testing. This testing methodology sets the stage for all DON commands that will begin testing their civilian pay controls in FY 2009. • • A-2-14 • Discovery and Documentation Completion – DON has conducted and completed significant discovery and documentation efforts across select key business processes that impact financial management. The efforts produced detailed process flow diagrams and narratives, and identified risks of financial management misstatement. The completed documentation provides greater insight and visibility into the financial processes for recognizing and estimating DON Environmental Liabilities. In addition, DON completed a risk analysis and identified key controls within the DON generic process. DON tested for operational effectiveness of the key controls without identifying impediments to assertion. DON is preparing to assert audit readiness of Environmental Liabilities by the end of December 2008. DON discovery efforts at DFAS-CL resulted in a detailed understanding on how Collections and Disbursements are processed from the feeder systems through field level accounting. The discovery work has helped DON identify and verify key controls within the Collections and Disbursements process. Naval Research Lab (NRL) Audit Readiness Condition – The DON plans to assert financial statement audit readiness for the NRL segment on September 30, 2008. The assertion will be based on an assertion package compiled by FMO using input from NRL and DFAS. The assertion represents DON's validation that controls over NRL-segment material business processes are in place and operating effectively. NRL has developed and implemented a sustainable methodology to assess internal control effectiveness and the validity of financial statement balances, including the use of an information management tool to capture internal control testing results. Though accounts payable and accrual transactions continue to present a challenge, NRL is reviewing mitigation strategies to resolve this weakness. COMMANDANT OF THE MARINE CORPS (CMC) • Marine Corps Internal Control Over Financial Reporting (ICOFR) Program: Process documentation, financial risk analysis and internal control assessments for financial business functions were conducted in a limited manner at the Marine Corps. This hindered the Marine Corps’ ability to promote and institutionalize efforts that seek to define, disclose and, where possible, optimize financial processes and internal controls. Past ICOFR program efforts did not adequately represent substantive analysis of key internal controls, therefore compromised the weight and quality of the SOA on ICOFR. For the FY 2008 cycle, the Marine Corps aggressively increased the scope of the ICOFR program with a 200 percent increase in accounting line items reviewed, a 157 percent increase in key internal controls tested, and a 2000+ percent increase of internal control assessments required. These increases have better defined and entrenched the ICOFR program across Marine Corps activities. Accounting Metrics Dashboard: Financial accounting performance indicator reports highlighted accounting irregularities and improvement opportunities in financial management practices and reconciliation efforts. Users were instructed to address the noted discrepancies but were not provided a measure of how their efforts correlated and compared to the efforts of others. A dashboard medium highlighting a command's relative standing was necessary in order to promote increased awareness of those issues that preclude accurate, timely and relevant financial management and reporting. Deputy Commandant, Programs and Resources A-2-15 (Accounting Branch) developed a visual dashboard of key accounting activities at the major command level. Key performance indicators have been developed for abnormal Accounts Payable, abnormal Accounts Receivable, abnormal Undelivered Orders, negative Unliquidated Orders, outstanding Travel Orders, Unliquidated Obligations and outstanding Commitments. This dashboard now creates a single point of reference for common accounting and analytical anomalies while establishing compliance thresholds for said concerns. Managers’ Internal Control (MIC) Liaison and Oversight of Finance Operations: This issue deals with the evaluation of Disbursing Policy effecting disbursing operations throughout the Marine Corps. Oversight of financial operations was accomplished through issuance of policy letters to relate codified, departmental, and local rules to disbursing and finance offices Corps-wide. These policy letters augment generic internal control programs within these offices and have been validated, updated, and filed. Every command was visited and reminded of relevant/current guidance. ACCOMPLISHMENTS SUPPORTING THE FY 2008 DON OBJECTIVES The DON Objectives provide a strategic focus for management, supporting organizational priorities and alignment. This annually-refreshed, short list of specific objectives provides a focus of effort for all organizations inside the Department. Success in these priorities will increase the effectiveness of the entire Department, improve the lives of Sailors and Marines, and result in greater security for our Nation. These objectives are not intended to be a comprehensive list of all that needs to be done in the Department. The list does, however, reflect the senior leaders' consensus on areas they will personally track to achieve the desired effects each year. PROVIDE A TOTAL NAVAL WORKFORCE CAPABLE AND OPTIMIZED TO SUPPORT THE NATIONAL DEFENSE STRATEGY Integration of Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) Suite Into Mine Resistant Ambush Protected (MRAP) Vehicles (SPAWARSYSCEN Charleston): SPAWARSYSCEN Charleston MRAP Team’s utilization of Lean Six Sigma (LSS) in a true industrial setting implemented process improvements to reduce C4ISR integration cycle time by modifying the production process to significantly reduce waste and variation in manufacturing. The team achieved aggressive, continuous improvement and new rapid integration and deployment processes, including: Government Furnished Equipment (GFE) logistics, tooling, GFE kitting, welding/teardown process, quality assurance, and facility utilization. These process improvements significantly influenced the increased production output and the higher first pass quality yields. The team used best systems engineering practices and steadfastly dedicated resources that contributed to the achievement of prototype completion time compression of an MRAP vehicle in 30 days time versus the normal year long cycle. Wounded Warrior Program (M&RA): United States Marine Corps Wounded Warrior Battalion West was established August 1, 2007 in Camp Pendleton, CA. Its mission, similar to the Wounded Warrior Regiment, is to provide and facilitate assistance to wounded/injured/ill A-2-16 Marines, Sailors attached to or in support of Marine units, and their family members, throughout the phases of recovery. The battalion is responsible for tracking and non-medical case management for all seriously ill or injured Marines west of the Mississippi River to Okinawa, Japan. The battalion also provides oversight and leadership to Marines as they recover. Further, CNO designated a rear admiral as Special Assistant to the CNO for Comprehensive Casualty Care. This designation requires coordination between Fleet, Shore, and Navy Medicine activities/organizations to develop coherent and complete plan of action necessary to sustain effective casualty care. The DON also incorporated “The Ten Steps of Care, Management and Transition Coordination,” including medical health screening, family support programs and other practices supporting comprehensive care for recovery, rehabilitation and reintegration of warriors. Increase in First Pass Approval Rate for Aggregated Aircraft Carrier Integrated Logistics Support (ILS) Certifications (SPAWAR): Prior to process improvements, ILS Certifications for aircraft carrier installations had a 95 percent rejection rate by NAVSEA Ship Program Manager (SPM). This problem extended across all Systems Commands (SYSCOMs) and created a large backlog of reviews at NAVSEA. The backlog affected the Logistics team’s ability to adequately respond to critical installations and ensure configuration of each system was identified, supported, and validated prior to the end of each carrier availability period. LSS events eliminated all ILS backlogs at NAVSEA, allowing the team to process emergent critical installations. As a result, the aircraft carrier First Pass Approval rate increased from 5 percent in FY 2005 to 87 percent in FY 2008. Ongoing meetings and interactions with the SPMs for carriers, ships, and subs have helped to ensure that accurate system configuration is documented, resulting in all logistics products and associated support elements being verified and in place for nearly all installations. Implementation of Lean Six Sigma to Improve Selection Board Processes (BUPERS): Navy Personnel Command's Officer Selection Boards Division (PERS-80) and Enlisted Advancements and Selection Boards Division (PERS-81) took part in a Navy Lean Six Sigma (LSS) project to examine and recommend changes to the eligibility and administrative processes for officer and enlisted selection boards. The Divisions drafted a Business Needs document requesting the development of Navy Promotions and Advancement System (NPAS), which was the most significant recommendation from the LSS project. NPAS is an upgrade to the Officer Promotion Administration System (OPAS), and if implemented, will significantly improve the current eligibility and selection board processes. In addition, they led a Zero-Based Review of selection board precepts and process improvements. The significant changes the group recommended were approved by Chief of Naval Personnel (CNP) and will be implemented during the CY-08 board season. Commander, Navy Personnel Command (CNPC)'s Officer Conduct and Separations Division is using LSS methods to reduce the time in routing promotion, delay and withhold packages to SECNAV. Initial sampling revealed 40 percent of the population sampled had been reversed at some level. Each package rework equated to 1.5 man hours at CNPC alone for a total of 84 man hours. A pilot package utilizing a “yes-no” single memorandum for Flag Officer reviews is currently being tested with an initial 50 percent reduction in processing time. A-2-17 Naval Research Information System (NAVRIS) Change Request (CR) Process Improvement; Reduction in Cycle Time (ONR): NAVRIS is a management information system used by ONR to generate and internally process CRs that result in issuance of funding documents, contracts, and grants. Deployed in 2006, NAVRIS has had numerous shortcomings, including the difficulty and time required to generate and process funding documents. ONR Comptroller initiated a Lean Six Sigma event to reduce the time required to process a CR within NAVRIS; generating and processing cycle time in NAVRIS was reduced 83 percent from 45 days to 7.6 days. Naval Supply Systems Command Lean Six Sigma: NAVSUP strengthened internal controls and streamlined business processes through its Continuous Process Improvement (CPI)/LSS Program. For FY 2007, 46 projects identified $7.7 million hard dollar savings, and $6.2 million increased capacity savings. To date, NAVSUP has trained 78 Black Belts and 283 Green Belts, completed 95 total projects and has 55 active Black Belt projects entered into the DON-wide Continuous Process Improvement Management System (CPIMS). The NAVSUP Public Web Site CPI section includes an overview of CPI, recent articles, photos and a calendar of upcoming events. USE THE NAVY-MARINE CORPS TEAM TO AGGRESSIVELY PROSECUTE THE GLOBAL WAR ON TERRORISM (GWOT) Joint Mine Resistant Ambush Protected (MRAP) Vehicle Program (ASN(RD&A)): To counter threats to warfighters, the Joint Program Office is using constant feedback from theater and test results and pursuing increased capabilities for MRAP vehicles based on Joint Requirements Oversight Council guidance. In one year, vehicles on contract increased from 1,639 to over 14,000; vehicles produced grew from 67 + 87 Legacy to over 8,200. Lean Six Sigma (LSS) process improvements were made on the manufacturer production lines and equipment integration facility at SSC Charleston to improve quality and increase production to 50+ MRAP vehicles a day. Overall, vehicles transported to theater and fielded went from 83 to over 5700 vehicles. The MRAP program is at 97 percent of production goals for an item that is being produced for the first time by many of the manufacturers. The MRAP program is maintaining readiness at between 93 and 96 percent. Department of the Navy Strategic Plan for Religious Ministry (CMC): The need to identify Religious Ministry (RM) requirements has drastically increased as the GWOT continues. To ensure current and emerging operational requirements, family readiness programs, and recruiting initiatives are appropriately aligned to support global mission requirements, the Chaplain Corps launched the following strategic planning measures: • • • Chaplain of the Marine Corps delivered a brief to the Commandant on the Navy’s (DON) Strategic Plan for Religious Ministry (RM). The Commandant validated four core Chaplain Corps capabilities for Chaplains serving with Marines: Facilitate, Provide, Care, and Advise. A working group was formed to develop a POA&M for completion of the validation process, which is expected to begin in the summer of 2008. A-2-18 • The DON Strategic Plan for RM has validated ministry requirements for United States Fleet Forces Command and Commander Naval Installations Command. Chaplain of the Marine Corps has briefed and received concurrence for the DON Strategic Plan for RM from MARFORCOM, MARFORPAC, II MEF and I MAW. The DON Strategic Plan for RM is designed to fully validate all RM requirements throughout the Marine Corps and Navy. The goal of this process is to determine the right religious ministry, to the right force, with the right readiness, at the right cost, today and in the future. Global War on Terrorism Cost of War (CoW) Reporting Improvement (FMB-1): DON uses multiple accounting systems with unique characteristics, inherently lacking both data commonality and application practices. This challenges DON’s ability to incorporate execution data into the current GWOT CoW reports. Thus, the CoW Improvement Team was established to analyze estimation and reporting methodologies and to better understand the current “as is” process for capturing and reporting GWOT CoW. The team has conducted site visits to Fleets and their subordinate operating units, personnel commands, acquisition commands, and regional commands. Implementation is in progress, and in partnering with DFAS and the Financial Operations Directorate within ASN(FM&C), FMC has made recommendations and will issue guidance to all Budget Submitting Offices to implement reporting improvements to commence with FY 2009 program execution. This guidance will summarize best practices and data commonalities; standardize cost reporting and modeled methodologies; and ensure reliable, repeatable, and defendable output. BUILD THE NAVY-MARINE CORPS FORCE FOR TOMORROW Contracting and Contract Management Outside the Continental United States (OCONUS) (OGC): In FY 2008, the Secretary of the Navy chartered an Acquisition Review Team to conduct a thorough review of policies, strategies and internal controls related to acquisition activities at major OCONUS locations within the DON. The team, including the Auditor General, a senior auditor from the Naval Audit Service, a senior fraud investigator from the Naval Criminal Investigative Service, and a senior Navy officer from the office of the Assistant Secretary of the Navy (RD&A), spent several months visiting all the major OCONUS acquisition activities. After reviewing statutes, regulations, and policies, the team found a generally positive control environment, with high-level interest and engagement of personnel. However, they did note specific control deficiencies and high-risk areas to include: personnel qualifications, turnover, over-reliance on foreign nationals and third-country nationals and difficulty in conducting background investigations. Additionally, they noted insufficient legal and Naval Criminal Investigative Service personnel at OCONUS locations. The team has proposed numerous solutions, which are currently being implemented. Aegis Ballistic Missile Defense Satellite Intercept (NAVSEA): Aegis Technical Representative (AEGIS TECHREP) provided on-site technical leadership and system engineering for the successful development and test of a new, significant and technically challenging tactical capability from January, 6 2008 to February, 20 2008 while simultaneously integrating and testing multiple program of record Aegis and Aegis Ballistic Missile Defense Combat System equipment and computer program baselines, both U.S. and allied. TECHREP A-2-19 leveraged all available resources to simultaneously support development, test and production efforts on multiple, complex Aegis combat system hardware and software baselines, identified potential problems and rapidly applied lessons learned. Specifically, TECHREP was instrumental in the successful intercept by the United States Navy of the disabled National Reconnaissance Office satellite on February, 20 2008. The Navy executed a technically challenging mission to intercept the satellite and decrease the risk it posed to United States citizens and other inhabitants around the world. Successfully Achieved ERP Milestone C Approval (ASN(RD&A) PEO EIS): The Navy ERP Program completed all required DON and OSD documentation and certification requirements in accordance with statutory and regulatory requirements and received ASD Networks and Integration approval on September 19, 2007 to enter into the Limited Deployment phase for its Template 1 with the Financial and Acquisition Release 1.0 in support of operational test and evaluation at NAVAIR. In result, the Navy ERP Program achieved its intended result on time and within budget. Reduction in Energy Use Since Establishing an Energy Management Team (SPAWAR Systems Center San Diego): Prior to establishing a dedicated team for energy management, SPAWAR Systems Center (SSC) San Diego’s energy costs were increasing every year at an alarming and unsustainable rate. The Energy Management Team’s numerous projects and campaigns to inform employees about energy conservation and simple ways to save energy, have effectively reduced SSC San Diego’s energy consumption by more then half from the previous highest consumption. SSC San Diego’s Energy Management Team has received the 2006 Excellence in Energy Savings Award, 2007 Gold Award from the Secretary of the Navy, and in 2008 team members were featured on a spring energy poster. CNIC HQ N4 Installation Management Utilities (UT) Program—Energy Goals: In Fiscal Year (FY) 2008, Congress passed the Energy Independence and Security Act 2007 (ESIAct07) which expanded upon Energy Policy Act 2005 and mandated requirements of Executive Order 13423. As a result, CNIC is required to reduce its energy intensity, as compared to FY 2003 energy intensity, by 3 percent annually from FY 2008 through FY 2015. CNIC funded a worldwide survey of meters at installations and developed a strategic metering plan. CNIC programmed $26 million in FY 2009 and $20 million in FY 2010-12 for meter installation. By instituting energy conservation measures, investing in financed energy projects and raising awareness, energy consumption was reduced by a cumulative 12 percent as of first quarter FY 2008. Additionally, Navy’s renewable energy consumption was 12.7 percent of total consumption. Naval Based Coronado (NBC) received the Commander-in-Chief's Installation Excellence Award for 2007: The Commander-in-Chief’s Installation Excellence Award recognizes one installation from each service whose command has made best use of available resources to accomplish its assigned mission. It focuses on imaginative and innovative management actions that have enhanced the quality of life of assigned personnel. NBC one of the highest competition scores in energy and water conservation. The base’s environmental stewardship included lowering costs while protecting its surroundings, and resulted in receipt of the FY 2007 CNO Environmental Award for Natural Resources Conservation. NBC also executed several A-2-20 environmental initiatives by balancing operations with resources responsibility, including the selection of Building 352 at Naval Air Station (NAS) North Island as a pilot location for installation of the Navy’s integrated photovoltaic roof system. This new system covers a span of 14,000 square feet without expanding the site’s footprint. This renewable energy source provides nearly 10 percent of the building’s daily peak electrical demand of 550kw. SAFEGUARD THE PEOPLE AND RESOURCES OF THE NAVY-MARINE CORPS TEAM MARFORCOM Security of Funds (CMC): An assessment of the disbursing office work spaces identified that insufficient security of funds existed for a Disbursing Agent. The Disbursing Agent works in an open work that area easily accessible by all office personnel. To ensure appropriate security of funds, a 100 pound safe was bolted and chained to the floor in the Fiscal Section of the Disbursing Office. This corrective action illustrates strengthening of internal control through a physical security action. Navy Personnel Accountability Program Implementation (CNIC): CNIC, the executive agent for mustering of all Navy personnel during catastrophic events, successfully performed two personnel accountability (PA) exercises and one real world event in 2008. Integrating a newly programmed electronic PA module in the web-based Navy Family Accountability and Assessment System (NFAAS), the two exercises mustered and accounted for over 98 percent for over 263,000 and 730,000 personnel respectively during two separate 5-day exercise periods. The purpose of these exercises was to train the ashore community in wide-area muster and accountability drills to ensure the PA processes were understood and institutionalized for Navy family readiness. Noteworthy enhancements to NFAAS include: (1) a very capable PA module with an individual self-mustering capability that can be used as an alternative when unable to contact one’s command, (2) easy access to family contact information for command personnel, (3) a user friendly UIC hierarchy and Commanding Officer Representative (COR) management tool, and (4) a very informative and detailed PA, Case Management, and individual augmentee (IA) reporting capability. Emergency Evacuation (OPPA): With the relocation of offices from the Office of Program Appraisal (OPA) – an organization of eight personnel – to the Office of Program and Process Assessment (OPPA) – an organization growing to 40 personnel – emergency training is required for all personnel. OPPA ensured all personnel were adequately trained and prepared for emergencies including evacuation of the building, emergency breathing protection, and Chemical, Biological, Radionuclide emergencies. All existing personnel have their emergency breathing protection checked periodically to ensure the protection is correct and has not expired. New personnel are instructed on OPPA's emergency evacuation route, including the primary and offsite muster areas. A walk-through ensures both the existing and new OPPA personnel are able to arrive at the primary and the offsite muster points without difficulty. Naval Safety Center (NAVSAFECEN): In FY 2008, in coordination with the Motorcycle Safety Foundation and Commandant of the Marine Corps (Safety Division), the Navy developed the Military Sport Bike Rider Course (MSRC). This course is providing sailors and Marines with the knowledge and skills needed to operate motorcycles safely, and is being adopted by the A-2-21 other services. NAVSAFECEN also established a working group to promote a more open environment within the afloat community in the reporting of hazards, near mishaps, and lessons learned. Major Command representatives and several ship Safety Officers participate in monthly round-table discussions at the Naval Safety Center. The identification and dissemination of hazard information directly supports the maintenance of the Navy’s warfighting readiness by contributing to mishap reduction. STRENGTHEN ETHICS AS A FOUNDATION OF EXEMPLARY CONDUCT WITHIN THE DON Ethics within the Department of the Navy (NAVINSGEN): During 2008, the Naval Inspector General (NAVINSGEN), the Deputy Naval Inspector General, or their representative briefed 1,019 individuals to reinforce ethics as the foundation of conduct within the DON. The recipients included 124 Flag/SES and 427 Commanding Officers. The briefing provides relative examples and reference material to reinforce ethical standards. NAVINSGEN also continues to distribute the NAVINSGEN developed hand-out brochure containing the DON Code of Ethics, listing of the Echelon II Inspectors General contact information, Exemplary Code Statute, Ethics and Legal Summaries, Navy Hotline telephone number and email address, and additional reference material. PROVIDE FIRST-RATE FACILITIES TO SUPPORT STATIONING, TRAINING AND OPERATIONS OF NAVAL FORCES Establishment of Joint Guam Program Office (JGPO): The mission of the JGPO is to facilitate, manage, and execute requirements associated with rebasing Marine Corps assets from Okinawa to Guam and to establish a Joint Base on Guam. JGPO has established an Internal Management Control Program to track and manage internal/external program costs, schedules, and performance. The Naval Facilities Engineering Command (NAVFAC) has been tasked to provide JGPO with progress reports on multiple studies being conducted as part of the National Environmental Policy Act. JGPO will require Earned Value Management (EVM) reports from NAVFAC that will standardize the way JGPO Directors view various reports circulating within the Program Office. JGPO requested Naval Audit Service assistance in performing gap analysis on the staffs training and experience. Based on that assistance, the following actions to improve processes and oversight have been identified: (1) Expectation Management Agreement (EMA) to identify Services needs in terms of cost, schedule, and performance; (2) Memorandums of Agreement (MOAs)/Understanding (MODs) between JGPO and their requirements, financial, and acquisition stakeholders to identify roles and responsibilities; (3) Acquisition Program Baseline (APB) to identify the Services' needs and desires. JGPO is on track to provide the required oversight, coordination, and synchronization on the program's cost, schedule, and performance. A-2-22 (TAB B-1) LISTS OF ALL UNCORRECTED AND CORRECTED MATERIAL WEAKNESSES Uncorrected Weaknesses Identified During the Period: Title Category: Major Systems Acquisition Earned Value Management (EVM) for Littoral Combat Ships (LCS) 1 and 2 Category: Supply Operations Marine Corps Small Arms Reporting Category: Information Technology Contingency Plan (CP) and CP Testing Management Quarter (QTR) and Fiscal Year (FY) Targeted Correction Date Page # 1st Qtr, FY 2009 1st Qtr, FY 2009 B-2-1 B-2-4 4th Qtr, FY 2009 B-2-7 Uncorrected Weaknesses Identified During Prior Periods: Correction Qtr & FY Date Per Last Per This Annual Annual Statement Statement Title Category: Procurement Oversight of Earned Value Management (EVM) for Naval Acquisition Programs Category: Property Management Management of Communications Security (COMSEC) Equipment Category: Communication and/or Intelligence and/or Security Continuity Planning Program Category: Communications and/or Intelligence and/or Security Safeguarding Personally Identifiable Information Year First Reported Page # FY 2007 4th Qtr, FY 2008 4th Qtr, FY 2008 B-2-10 FY 2006 1st Qtr, FY 2008 1st Qtr, FY 2009 B-2-13 FY 2006 3rd Qtr, FY 2008 1st Qtr, FY 2009 B-2-15 FY 2007 4th Qtr, FY 2008 B-1-1 1st Qtr, FY 2009 B-2-18 Category: Procurement Management and Oversight of the Department of the Navy’s Telecommunication Program FY 2007 2nd Qtr, FY 2009 4th Qtr, FY 2009 B-2-21 Corrected Weaknesses Identified During All Periods: Year First Reported Title Category: Information Technology Navy Marine Corps Intranet (NMCI) Network Performance and Capabilities Category: Information Technology Information Assurance Federal Information Security Management Act (FISMA) Metrics Page # FY 2007 B-3-1 FY 2006 B-3-3 B-1-2 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Current Period” Title and Description of Issue: Earned Value Management (EVM) for Littoral Combat Ships (LCS) 1 and 2. At ASN (RD&A) request, following significant program cost growth, the Naval Audit Service (NAVAUDSVC) completed an audit of the use of EVM on the LCS 1 (contract N00024-03-C-2311) and LCS 2 (contract N00024-03-C-2310) in January 2008. The audit service found that “...Overall, EVM was not effectively implemented on the LCS program, an ACAT 1D Program, for either of the ships being built (the “Independence” and the “Freedom”).” ASN (RD&A) concurred and believes that implementation of the NAVAUDSVC recommendations is appropriate. ASN (RD&A) agrees that effective EVM implementation and oversight is a critical component of overall management controls for the LCS program and all other major Navy acquisition programs. The NAVAUDSVC recommendations are presented as correction milestones for this material weakness. Functional Category: Major Systems Acquisition Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (DASN) Ship Programs Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 1st Qtr, FY 2009 Targeted Correction Date in Last Year’s Report: N/A Current Target Date: 1st Qtr, FY 2009 Reason for Change in Date: N/A Validation Indicator: The command will require periodic updates from Naval Sea Systems Command (NAVSEA) and Program Executive Office (PEO) Ships on the progress of completing corrective actions. The final recommendation will require a Defense Contract Management Agency (DCMA) validation review to provide assurance that the contractor's EVM System (EVMS) is fully compliant. Results Indicator: Upon completion of the required actions, the contractor will have an EVMS certified by DCMA. This will enable the contractor to accurately report cost and schedule status against a Performance Measurement Baseline and allow the government to closely monitor contract performance and take corrective actions as necessary. Additionally, certification of the contractor EVMS systems will have benefits on potential future LCS construction contracts at these contractors. Accurate prediction of contract Estimate at Completion (EAC) with the EVMS reporting is a defined performance measure to determine successful completion of the proposed B-2-1 remedial effort. Source(s) Identifying Weakness: NAVAUDSVC Report N2008-0015, "Earned Value Management for the Littoral Combat Ship "Freedom" Contract N00024-03-C-2311,” dated January 7, 2008. NAVAUDSVC Report N2008-0038, "Earned Value Management for the Littoral Combat Ship "Independence" Contract N00024-03-C-2310,” dated June 12, 2008. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Completed Completed Milestone: Conduct Comprehensive EAC (LCS 1 and 2) Conduct bottom up schedule review (LCS 1 and 2) Approve an Over Target Baseline (OTB) based on EAC and schedule review (LCS 1) Require Contractor to provide a corrective Plan of Actions and Milestones (LCS 1 and 2) Conduct an Integrated Baseline Review of the OTB (LCS 1) DCMA, Supervisor of Shipbuilding (SUPSHIP), Defense Contract Audit Agency (DCAA), Contractor Joint Surveillance Plan Implementation (LCS 1) Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 4th Qtr, FY 2008 4th Qtr, FY 2008 4th Qtr, FY 2008 Milestone: Conduct an Integrated Baseline Review of the Over The Baseline (OTB) (LCS 2) DCMA and Supervisor of Shipbuilding (SUPSHIP) monitor implementation of GD POAM (LCS 2) Request DCMA conduct validation review of Contractor EVMS System (LCS 2) DCMA, SUPSHIP, Defense Contract Audit Agency (DCAA), Contractor Joint Surveillance Plan Implementation (LCS 2) B-2-2 1st Qtr, FY 2009 1st Qtr, FY 2009 DCMA and SUPSHIP Monitor Implementation of LM POAM (LCS 1) Request DCMA conduct validation review of Contractor EVMS System (LCS 1) C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-3 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Current Period” Title and Description of Issue: Marine Corps Small Arms Reporting. Inadequate controls over small arms in-transit shipping transactions as a result of general inattention to required procedures at all levels in the shipping process and insufficient management oversight to ensure that the process was functioning as intended. Functional Category: Supply Operations Component: Department of the Navy Senior Official(s) in Charge: Commanding General, MARCORLOGCOM Deputy Commandant for Installations and Logistics Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 1st Qtr, FY 2008 Targeted Correction Date in Last Year’s Report: N/A Current Target Date: 1st Qtr, FY 2008 Reason for Change in Date: N/A Validation Indicator: MARCORLOGCOM - Due to high volume of delinquent in-transit small arms shipments, Headquarters Marine Corps appointed Marine Corps Logistics Command as the Executive Agent (EA) for the management oversight of all serialized small arms accountability reporting. As the EA, the interim goal established by Logistics Command HQ was to accurately account for the 13,889 delinquent in-transit shipments and reduce the quantity of delinquent intransit shipments to a threshold of 1,000 by March 31, 2008. MARCORLOGCOM provided HQMC a monthly Missing, Lost Stolen Report (MLSR) with the status of each serialized small arms effective January 1, 2008. I&L - Validation will be accomplished by a review of the accountability process and compliance with published directives through on site verification, quality assurance reviews and management control reviews. Results Indicator: MARCORLOGCOM - On March 31, 2008, the EA reported a total quantity of only 6 remaining unreconciled delinquent in-transit shipments out of 8,323 from the March 2007 audit report, and a total of 6 remaining unreconciled delinquent in-transit shipments of 13,889 from the November 2007 audit report respectively. On April 22, 2008, the quantity for these two original audit reports was reduced to zero unreconciled assets properly reported by the EA. Interim baseline for delinquent in-transit small arms has since been reset at 500 as a goal by B-2-4 the EA. The EA has been successful in maintaining an average of 397 delinquent in-transit small arms across the Marine Corps enterprise for the past three months. Source(s) Identifying Weakness: NAVAUDSVC Interim Report N2008-0008, "Marine Corps Small Arms,” dated November, 23 2007 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: MARCORLOGCOM inventory to ensure 100% inventory accuracy on an ongoing basis Guidance published, to include: • CMC Msg 061832Z DEC 07, Subject: Designation of Marine Corps Logistics Command as the Marine Corps Executive Agent for Serialized Small Arms Reporting. • CMC Msg 122214Z DEC 07, Subject: Format for Reporting Results of Serialized Small Arms Reconciliation for Delinquent In-Transit Shipments, Delinquent Annual Verification Reports and MLSR Reports • CMC Msg 271458Z MAR 08, Subject: Finalization of Outstanding Initial Small Arms Missing, Lost, Stolen, Recovered (MLSR) Reports • CMC Msg: 021447Z APR 08, Subject: Interim Policy Clarification for the Implementation of Automated Serialized Small Arms Data Transfers (MARCORLOGCOM FSD/Crane) • CMC White Letter on Equipment Accountability Completed B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 1st Qtr, FY 2009 Milestone: Fleet Support Division (FSD) Warehouse Automated Information Technology Initiative Implement automated process to facilitate electronic transfer of transactions from Marine Corps units to Naval Surface Warfare Center Crane, Indiana Issue new Marine Corps Order (MCO) 8300.1 Marine Corps Serialized Small Arms Accountability 1st Qtr, FY 2009 B-2-5 C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-6 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Current Period” Title and Description of Issue: Contingency Planning (CP) and CP Testing Management. In 2008, the Department of Defense Office of the Inspector General (DoD IG) found significant inaccuracies across DoD in reporting status of contingency plans and their required annual exercising. In general, some plans could not be located, were not individually approved by a person in authority, or their testing documentation was neither proper nor properly recorded in the Department of Navy (DON) variant of the DoD Information Technology Portfolio Repository (DITPR-DON). Functional Category: Information Technology Component: Department of the Navy Senior Official in Charge: DON Chief Information Officer Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 4th Qtr, FY 2009 Targeted Correction Date in Last Year’s Report: N/A Current Target Date: 4th Qtr, FY 2009 Reason for Change in Date: N/A Validation Indicator: Department of the Navy Chief Information Officer (DON CIO) message 291600Z FEB 2008 directed Navy Echelon-2 command Information Officers (IOs) to complete a one time data quality audit of all DITPR-DON registered systems for which certification and accreditation (C&A) is required. Our internal audit requires the following: 1. Audit each appropriate system for accurate reporting in DITPR-DON for contingency plan approval and exercise date. 2. Command IOs review documentation for CP and Exercise approval requirements specified in our message. 3. Command IOs audit mission criticality and mission assurance levels for each appropriate system reported in DITPR-DON against those stated by the milestone decision authority. 4. Command IOs document their audit evaluations and report completion to the respective DON deputy CIO (Navy and Marine Corps) for forwarding to DON CIO by the end of FY 2008. 5. For outstanding deficiencies from the audit, the system owner must submit a Plan of Action and Milestones (POA&M) to the Command IO and Operational Designated Accrediting Authority for forwarding to DON CIO. B-2-7 Results Indicator: 100% compliance with DoD and DON CIO contingency plan guidance specified in DON CIO 291600Z FEB 08, and overall adherence to the FY 2008 FISMA report Guidance of May 12, 2008. Source(s) Identifying Weakness: DoD IG Audit D-2008-047, February 5, 2008 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Issued Department of the Navy Chief Information Officer (DON CIO) message 291600Z FEB 2008 providing CP requirements and requiring the following actions: • Program Managers of deficient systems submit to DON CIO via the respective Operational Designated Accrediting Authority a Plan of Action and Milestones (POA&M) for correction of all deficiencies identified in the audit. • Command IOs audit all systems for: (1) Approved system contingency plan issued. (2) Contingency Plan exercising is accomplished, approved, and properly recorded. (3) Correct mission criticality and mission assurance categories have been assigned and properly recorded. • Command IOs submit audit results to DON CIO via the DON Deputy CIO (Navy or Marine Corps) by Sept 30, 2008. The required POA&Ms have been submitted and approved by DON CIO. B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 2nd Qtr, FY 2009 Milestone: DON CIO receives audit reports and directs corrective action as necessary. Command IOs document audit evaluations and report completion to the respective DON Deputy CIO (Navy or Marine Corps) for forwarding to DON CIO by the end of FY 2009. System owners submit a POA&M to the Command IO and Operational Designated Accrediting Authority for forwarding to DON CIO. B-2-8 3rd Qtr, FY 2009 4th Qtr, FY 2009 DON CIO reports completion of all outstanding audit deficiencies to OSD and DOD IG. C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-9 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Oversight of Earned Value Management (EVM) for Naval Acquisition Programs. This material weakness consolidates the material weaknesses from three prior EVM audit reports from FY 2000 through FY 2006. All reports identify systemic weaknesses in policies and procedures regarding the implementation and oversight of EVM within the Department of Defense (DoD), which has an overall impact on the Department of Navy (DON) EVM Program. Naval Audit Service has advised and requested Under Secretary of Defense (Acquisition Technology and Logistics) (USD(AT&L)) establish: 1. Policy and procedures clearly identifying roles and responsibilities of all organizations involved in effectively implementing, coordinating, and overseeing EVM within DoD. 2. Uniform policy outlining enforcement actions to be taken when Program Managers and contractors do not comply with EVM policy and procedures and contractual requirements. Functional Category: Major Systems Acquisition Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy, Research Development and Acquisition (ASN(RD&A)), Management & Budget/Chief of Staff Pace of Corrective Action: Year Identified: FY 2007 Original Targeted Correction Date: 4th Qtr, FY 2008 Targeted Correction Date in Last Year’s Report: 4th Qtr, FY 2008 Current Target Date: 4th Qtr, FY 2008 Reason for Change in Date: N/A Validation Indicator: The Center for Earned Value Management (CEVM) will sample the contracts of several Acquisition Category One (ACAT 1) programs to ensure that proper EVM requirements are in place and are in accordance with DoD and Navy policy. The review will also ensure that adequate analysis is conducted on those contracts. This analysis standard will be defined in a policy memorandum planned to be signed out in the first quarter of FY 2008. Results Indicator: An annual sampling of ACAT 1 programs indicates 80% or greater compliance with DoD and Navy policy. B-2-10 Source(s) Identifying Weakness: • • • Naval Audit Service (NAVAUDSVC) Report N2005-0056, “Earned Value Management for the DDG-51 Arleigh Burke Class Destroyer,” dated August 31, 2005 NAVAUDSVC Report N2004-0057, “Earned Value Management for the Extended Guided Munition Program,” dated June 16, 2004 NAVAUDSVC Report N2003-0045, “Earned Value Management at Program Executive Office at Anti-Submarine Warfare Assault and Special Missions Program,” dated May 2, 2003 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: ASN (RD&A) established the Department of Navy Center of Excellence for Earned Value Management (the CEVM is currently staffed by a Director and contractor support and interviews are being conducted to fill four vacancies within the Center). USD (AT&L) signed out the necessary policy and procedures clearly identifying the roles and responsibilities and defining the accountability for the key players such as Defense Contract Management Agency, Defense Contract Audit Agency, contractors, and Components. CEVM fully staffed. Minimum Analysis Standards memorandum published. EVM toolkits made available to program managers. CEVM mobile training team established. Begin sampling of contract requirements and analysis used on Navy programs. Completed Completed Completed Completed Completed Completed B-2-11 B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 Milestone: Complete sampling of contract requirements and analysis and assess results. Pending results of FY 2008 contract sampling, additional steps may be required. C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-12 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Management of Communications Security (COMSEC) Equipment. Naval Audit Service (NAVAUDSVC) conducted an audit in 2006 of the Navy management of communications security equipment. The audit found Navy procedures lacking and listed a number of recommendations to correct the problems. Functional Category: Communications and/or Intelligence and/or Security Component: Department of the Navy Senior Official in Charge: Director, Warfare Integration (N6F) Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 3rd Qtr, FY 2007 Targeted Correction Date in Last Year’s Report: 1st Qtr, FY 2008 Current Target Date: 1st Qtr, FY 2009 Reason for Change in Date: Extensive review of DRAFT OPNAVINST 5239.1C led to a more comprehensive view of internal controls over COMSEC, leading to a re-write of the instruction and delays in its publication. Validation Indicator: All NAVAUDSVC audit recommendations related to the Management of Communications Security Equipment have been implemented and the audits closed. Remaining requirement to close out the identified Material Weakness is publication of OPNAVINST 5239.1C, anticipated to be completed in 1st Qtr, FY 2009. Results Indicator: Publication of OPNAVINST 5239.1C. Source(s) Identifying Weakness: NAVAUDSVC audit of the management of Communications Security (COMSEC) Equipment conducted in 2006. B-2-13 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Commandant of the Marine Corps (CMC) Staff and Chief of Naval Operations (CNO) Staff complete investigation of missing COMSEC Equipment. CMC Staff and CNO Staff to establish written guidelines to address internal control weaknesses identified. CMC Staff and CNO Staff strengthen and enforce their internal controls over COMSEC Equipment at the owning activities with accurate records and on-site verification. Verify complete accountability of COMSEC Equipments at CMC Staff and CNO Staff. Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 Milestone: Publication of OPNAVINST 5239.1C C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-14 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Continuity Planning Program. The DON needs to fully implement a Continuity Planning Program (formerly referred to as Emergency Action Planning) to include clear and concise guidance, plans, and coordinated continuity planning exercises. To ensure more complete implementation, DON needs to enhance and implement more effective oversight responsibilities as required by both DoD and DON guidance. In addition, such oversight responsibilities will require coordination with, and implementation by, DON subordinate commands. We identified the need to implement a Continuity Planning Program as a material internal control weakness to highlight the urgency for management to increase attention to the area and take corrective actions to ensure ensuring continuity plans are adequately and fully developed. Implementation of corrective actions are planned to correct identified weaknesses and prevent future recurrence. Functional Category: Communication and/or Intelligence and/or Security Component: Department of the Navy Senior Official in Charge: Assistant for Administration, Under Secretary of the Navy (AAUSN) Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 3rd Qtr, FY 2007 Targeted Correction Date in Last Year’s Report: 3rd Qtr, FY 2008 Current Target Date: 1st Qtr, FY 2009 Reason for Change in Date: Changes in program administration at subordinate organizations led to delays in COOP development at those organizations. Validation Indicator: All corrective action(s) are certified by the responsible commands upon completion and reviewed through on-site verification, subsequent audit, inspection, quality assurance review, or internal control reviews. Results Indicator: Full implementation of the Continuity Planning Program by AAUSN, Chief of Naval Operations (CNO) (N3/N5), and Commandant of the Marine Corps (CMC) and assurance that guidance has been issued and oversight responsibilities have been fully exercised as required by SECNAV Instruction 3030.4A. AAUSN, CNO, and CMC validation that headquarters and subordinate commands have developed continuity plans to identify and support DON’s missionessential functions. B-2-15 Source(s) Identifying Weakness: • • • • Naval Audit Service (NAVAUDSVC) Report N2006-0034, “Summary Report on Emergency Action Plan Oversight,” dated July 13, 2006 NAVAUDSVC Report N2004-0042, “Emergency Planning at Naval Criminal Investigative Service,” dated April 29, 2004 NAVAUDSVC Report N2004-0006, “Emergency Planning at Naval Security Group Command,” dated October 23, 2003 NAVAUDSVC Report N2003-0011, “Office of Naval Intelligence (ONI) Emergency Action Plans,” dated November 8, 2002 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Full implementation of a continuity program in accordance with SECNAV Instruction 3030.4A. Conduct DON wide COOP exercise to include relocation of Emergency Response Team. Non-relocating organizations to exercise their plans and apply lessons learned. 75% signed continuity plans for DON subordinate commands. MCNOSC reviewed draft COOP COOP addressed and reviewed by COMNAVNETWARCOM and Naval Network and has been staffed. The Marine Corps issued a MCNOSC 3020 which is the current standing order concerning COOP with linkage to oversight of NMCI and the Marine Corps Central Office of Information (COI) during contingency event. Revision of NCNOSC Order 3020.1 signed by the Commanding Officer, April 2008 Completed Completed Completed Completed Completed Completed B-2-16 B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 1st Qtr, FY 2009 Milestone: Verify that 100% of DON subordinate commands have signed continuity plans. Marine Corps: Creation of Alternate NOSC Site C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-17 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES / STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Safeguarding Personally Identifiable Information (PII). Since October 2006, the Department of the Navy (DON) reported over 97 incidents involving the loss of Personally Identifiable Information, impacting over 27,000 Navy and Marine Corps personnel, including retirees, civilians, and their dependents. Significant loss of PII stems from loss or theft of laptop computers and removable data storage devices, unprotected data on websites, and improperly sent email; all of which are primarily caused by human error. The loss of PII erodes confidence in the DON’s ability to protect information has the potential to negatively impact employee morale, and can result in identity theft. SECNAV has stated this is a top priority to fix and wants to treat PII in the same manner as classified information and build similar handling processes with consequences for mishandling. Functional Category: Communications and/or Intelligence and/or Security Component: Department of the Navy Senior Official in Charge: Department of the Navy, Chief Information Officer Pace of Corrective Action: Year Identified: FY 2007 Original Targeted Correction Date: 4th Qtr, FY 2008 Targeted Correction Date in Last Year’s Report: 4th Qtr, FY 2008 Current Target Date: 1st Qtr, FY 2009 Reason for Change in Date: Organizational re-structuring required assignment of new privacy official and promulgation of policy. Validation Indicator: Multi-faceted approach aimed at shaping human behavior and accountability along with raising PII awareness across the DON. Results Indicator: A “Green” rating on the E-Gov Privacy Impact Assessment (PIA) Scorecard (90% or better). After an initial increase in number of PII incidents due to increased awareness, the number of incidents will gradually establish a steady state baseline from which result of actions can be measured. Number of identity theft cases linked to government loss of PII (currently none). Source(s) Identifying Weakness: • Naval Audit Service (NAVAUDSVC) Report N2007-0004, “Management of Privacy Act Information at Naval District Washington,” dated November 21, 2006 B-2-18 • • • • • NAVAUDSVC Report N2007-0012, “Disposal of Protected Personal Information at Naval Base San Diego, CA,” dated February 2, 2007 NAVAUDSVC Report N2007-0014, “Disposal of Protected Personal Information at Marine Corps Base Camp Pendleton, CA,” dated February 15, 2007 NAVAUDSVC Report N2007-0018, “Disposal of Protected Personal Information at Naval District Washington, DC,” dated March 1, 2007 NAVAUDSVC Report N2007-0025, “Disposal of Protected Personal Information at Naval Medical Center Portsmouth, VA,” dated April 12, 2007 NAVAUDSVC Report N2007-0035, “Disposal of Protected Personal Information at Naval Station Norfolk and Naval Amphibious Base Little Creek, Norfolk, VA,” dated May 25, 2007 NAVAUDSVC Report N2007-0036, “Disposal of Protected Personal Information at Naval Support Activity Mid-South, Millington, TN,” dated May 25, 2007 NAVAUDSVC Report N2007-0037, “Disposal of Protected Personal Information at Department of the Navy Facilities,” dated May 25, 2007 GAO Report GAO-07-657, “Privacy: Lessons Learned about Data Breach Notification,” dated April 30, 2007 GAO Report GAO-07-737, “Data Breaches Are Frequent, but Evidence of Resulting Identity Theft Is Limited; However, the Full Extent Is Unknown,” dated June 4, 2007 PII Incident Reports Federal Information Security Management Act/E-Gov PIA Scorecard • • • • • • Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Completed Completed Milestone: Rewrite DoD PIA template and automate process. Develop privacy IT strategy for next generation DON network. Develop PII compliance spot check form to measure command compliance. Create POD Cast to raise importance of PII awareness to DON. B-2-19 Completed Completed Completed Completed Promulgate Data at Rest encryption and implementation policy. Achieve 90% PIA compliance score. Conduct DON-wide PII stand-down to raise awareness and improve accountability. Promulgate new reporting procedure policy that reflects latest OMB guidance. Begin certifying DON Privacy Officials under International Association of Privacy Professionals (IAPP) Certified Information Privacy Professional (CIPP) standards. Conduct red team demonstration on public facing and protected DON web sites. Develop and promulgate policy that addresses consequences to PII mishandling. Ensure commercial contract language provides adequate PII safeguards. Consolidate DNS Privacy Act/FOIA Office with DON CIO Privacy Office. Completed Completed Completed Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 Milestone: Rewrite SECNAV 5211.5E Privacy Program Instruction reflecting significant policy changes with caveat that noncompliance may result in punitive action. Implement data at rest encryption requirement for all portable hard drives. 1st Qtr, FY 2009 C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-20 (TAB B-2) UNCORRECTED MATERIAL WEAKNESSES STATUS OF CORRECTIVE ACTIONS “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Management and Oversight of the Department of the Navy’s Telecommunications Program. In 2004 the General Accountability Office (GAO) audited the Navy’s Telecommunication Program. The report contained eleven recommendations to: enforce existing policies related to maintaining accurate inventory data and performing review and validation procedures; develop and enforce comprehensive policies and guidance governing the purchase, issuance, and use of cell phones and calling card services; and develop a strategic management framework for improving the acquisition of telecommunication services by strengthening the Navy’s analysis of telecommunication service requirements and spending. Functional Category: Information Technology Component: Department of the Navy Senior Official in Charge: Department of the Navy Chief Information Officer Pace of Corrective Action: Year Identified: FY 2004 Original Targeted Correction Date: 2nd Qtr, FY 2009 Targeted Correction Date in Last Year’s Report: 2nd Qtr, FY 2009 Current Target Date: 4th Qtr, FY 2009 Reason for Change in Date: Added milestones to include the development and approval of a Concept of Operations (CONOPS) for Enterprise Telecommunications Management. Validation Indicator: Responsible commands will 1) inventory, manage, and account for telecommunication systems and services through the use of automated tools allowing for enterprise-wide visibility, analysis, and reporting and 2) audit telecommunication systems and services through the reconciliation of vendor and Department of the Navy (DON) invoice records against contracted rates and terms. Results Indicator: The weakness is considered resolved when the DON implements an enterprise telecommunications management framework. Source(s) Identifying Weakness: GAO Report 04-671, Inadequate Management Oversight Hampers the Navy’s Ability to Effectively Manage Its Telecommunication Program, dated June 2004. B-2-21 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Issued SECNAV memo on Telecommunication Management Action Plan. Released Request for Information (RFI) to industry to evaluate best practices. Enterprise cell phone contracts executed by Fleet Industrial Supply Center (FISC). Issued ASN(RD&A) memo - DON Acquisition Policy on Mobile Phone and Data Equipment Services. Issued DON CIO memo - DON Policy for issuance, use and management of Government provided Mobile phone, data equipment and services. Issued DON CIO memo - DON Policy on Electronic Submission of Payment Request from Telecommunications Service Providers Naval Communications and Telecommunications Master Stations (NCTAMS). Adopt configuration accounting information retrieval system operation support software for base communication officer support in over 30 bases. Completed Completed Completed Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 2nd Qtr, FY 2009 3rd Qtr, FY 2009 4th Qtr, FY 2009 Milestone: Create Policy Roadmap to support DON Telecommunications Management. Complete SECNAVINST 2060.X, Enterprise Telecommunications Instruction. Develop CONOPS for Enterprise Telecommunications Management. Implement CONOPS for Enterprise Telecommunications Management phase 1. C. Planned Milestones Beyond Fiscal Year 2009: N/A B-2-22 (TAB B-3) MATERIAL WEAKNESSES CORRECTED THIS PERIOD “Identified During Prior Periods” Title and Description of Issue: Navy Marine Corps Intranet (NMCI) Network Performance and Capabilities. The NMCI Norfolk Network Operations Center (NOC) and server farm suffered a catastrophic power failure at 0608 EDT, May 12, 2007. The NOC was restored at 0700 EDT on May 13, 2007 and the server farm was restored with full services at 1850 EDT on May 14, 2007. The operational impact of the situation was the overall loss of NMCI Global Network Operations Center (GNOC) Norfolk and the Norfolk-based server farm, which severely impacted Norfolkhomed NMCI users and their ability to effectively command and control using NMCI, which provide Non-Secure Internet Protocol Router (NIPR) and Secure Internet Protocol Router (SIPR) networks. 80,000 users homed (accounts or storage directly serviced at this location) to the Norfolk server farm (NIPR and SIPR) experienced service interruption or loss to web surfing; email (receipt, delivery, and access) no emails were lost; file (access to file stores) and print (access to networked printers). East Coast users experienced loss of blackberry services (approximately 6,800 users) and public folder services including access to naval messages. All Navy users enterprise-wide experienced loss of services to the Norfolk hosted enterprise service: Outlook web access. Functional Category: Communications and/or Intelligence and/or Security Component: Department of the Navy Senior Official in Charge: Director of Operations, Naval Network Warfare Command (NAVNETWARCOM) Pace of Corrective Action: Year Identified: FY 2007 Original Targeted Correction Date: 2nd Qtr, FY 2008 Targeted Correction Date in Last Year’s Report: 2nd Qtr, FY 2008 Current Target Date: N/A Reason for Change in Date: N/A Validation Indicator: Develop a viable Continuity of Operations Plan (COOP) that will ensure critical C2 services and key VIP users are mission ready and then re-home them in an alternate location. Exercise the COOP in a live environment and measure performance of NMCI components. Results Indicators: 1. Reliability: The NMCI enterprise is maintained at the contractual Service Level Agreements. 2. Continuity of Operations: In the event of a catastrophic failure, critical users and services B-3-1 are accessible from a fall back/mirrored system within an established service level agreement. Source(s) Identifying Weakness: Assistant Secretary of the Navy (Research, Development and Acquisition) review Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Norfolk GNOC publish user tutorial explaining user responsibilities and NMCI capabilities during normal and degraded operations. Obtain funding and procure the resources to develop and field a viable COOP for critical server farms/C2 services in the NMCI enterprise. Norfolk GNOC review COOPs and identify gaps during catastrophic loss of Norfolk server farm, e.g., user backup routines, alternate storage devices, alternate public server availability, relocation of key Global Network Operations Center (GNOC) personnel. Norfolk GNOC Direct Liaison Authorized (DIRLAUTH) with Program Manager-Navy, Marine Corps Intranet (PMNMCI) to publish impact plans for greater user awareness. Norfolk GNOC develop and publish preplanned responses in support of coop. DIRLAUTH with PM-NMCI. Norfolk GNOC Identify critical users and services homed in Norfolk server farm. Upon identification of critical users and services, explore feasibility of dual homing with PMNMCI and Electronic Data Systems (EDS). Completed Completed Completed Completed Completed B-3-2 (TAB B-3) MATERIAL WEAKNESSES CORRECTED THIS PERIOD “Identified During Prior Periods” Title and Description of Issue: Information Assurance Federal Information Security Act (FISMA) Metrics. The primary Information Assurance (IA) weaknesses in the Department of the Navy (DON) are the status of Certification and Accreditation (C&A) of DON systems and the conduct of FISMA-required annual system security reviews, security control testing, and evaluation of continuity of operations plans. Functional Category: Information Technology Component: Department of the Navy Senior Official in Charge: Department of the Navy, Chief Information Officer Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 1st Qtr FY 2008 Targeted Correction Date in Last Year’s Report: 2nd Qtr FY 2008 Current Target Date: N/A Reason for Change in Date: N/A Validation Indicator: Validation is accomplished by DON CIO review of the entries in the FISMA section of the DON variant of the Defense Information Technology Portfolio Repository (DITPR-DON), the annual letters to the DON Deputy CIO’s from the Echelon-II commanders, the annual letters from the DON Deputy CIOs to DON CIO, and the annual letter from DON CIO to the Department of Defense (DoD) CIO certifying completeness and accuracy of DITPR-DON. Results Indicator: Navy and Marine Corps certify and accredit active systems that require C&A, and maintain a minimum status of 90% of active systems requiring C&A to be accredited. Source(s) Identifying Weakness: DON CIO Evaluation and Oversight B-3-3 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Completed Milestone: U.S. Marine Corps has reached greater than 90% status in all areas covered by this material weakness. Achieve 60% certification and accreditation (C&A) rate and 60% completion rate of the three annual FISMA requirements discussed above. DON CIO issue and update SECNAV Instruction 5239.3A, “Information Assurance Policy”. Achieve 70% C&A rate and 70% completion rate of the three annual FISMA requirements discussed above. Achieve 80% C&A rate and 80% completion rate of the three annual FISMA requirements discussed above. DON reach goal of 90% certification and accreditation of information technology systems in DITPR-DON and 90% completion rate of FISMA required annual system security reviews, annual testing of security controls, and annual review and evaluation of COOPs. Update the current Secretary of the Navy (SECNAV) IA Policy directive to conform and expand upon latest guidance. Completed Completed Completed Completed B-3-4 RESERVED FOR PRINCIPAL STAFF ASSISTANTS ONLY (TAB C) C-1-1 (TAB D-1) LISTS OF ALL UNCORRECTED AND CORRECTED MATERIAL WEAKNESSES NAVY GENERAL FUND Uncorrected Weaknesses Identified During the Period: Quarter (QTR) and Fiscal Year (FY) Targeted Correction Date 1st Qtr, FY 2009 1st Qtr, FY 2011 Title Category: Financial Reporting Collections and Disbursements Category: Financial Reporting Procure to Pay Processes Page # D-2-1 D-2-4 Uncorrected Weaknesses Identified During Prior Periods: Correction Qtr & FY Date Year First Reported Per Last Annual Statement Per This Annual Statement Title Category: Financial Reporting General Equipment Category: Financial Reporting Military Equipment Page # FY 2007 1st Qtr, FY 2009 4th Qtr, FY 2013 D-2-7 FY 2005 1st Qtr, FY 2009 4th Qtr, FY 2013 D-2-9 Category: Financial Reporting Operating Materials And Supplies (OM&S) FY 2005 Category: Financial Reporting Real Property 4th Qtr, FY 2011 2nd Qtr, FY 2015 D-2-12 FY 2006 2nd Qtr, FY 2009 2nd Qtr, FY 2013 D-2-15 D-1-1 Corrected Weaknesses Identified During All Periods: Year First Reported Title Category: Financial Reporting Environmental Liabilities Page # FY 2005 D-3-1 D-1-2 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Collections and Disbursements, General Fund. Navy General Fund activities do not reconcile cash accounts to the Department of Treasury cash account balance on a consistent basis. Allowance for Doubtful Accounts is not established or recorded and interest is not accrued for past due Accounts Receivable (A/R). Demand letters and the write-off of uncollectible A/R are not processed on a timely basis. In addition, Accounts Payable is not posted prior to disbursements, which results in unmatched disbursements and collections. This weakness replaces Financial Reporting of Fund Balance with Treasury, General Fund, previously reported in the DON Statement of Assurance, to better align with the Financial Improvement Program segments. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2006 (as Financial Reporting of Fund Balance with Treasury, General Fund) Original Targeted Correction Date: 4th Qtr, FY 2008 Targeted Correction Date in Last Year's Report: 1st Qtr, FY 2009 Current Target Date: 1st Qtr, FY 2009 Reason for Change in Dates: The cancellation of the Compensating Control Tool and the new development of the DFAS/CL Business Activity Monitoring (BAM) Tool to assist in the resolution of Unmatched Disbursements (UMDs) resulted in the change of the assertion date. Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the DON has developed and implemented a process and internal control system to ensure a proper reconciliation of Command/Activity accounting reports and records with Treasury’s reports and records. This will be documented by submission of Management Assertion. D-2-1 Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Document processes and controls for reconciling, tracking, and reporting unmatched disbursements and collections and resolve deficiencies identified as part of this discovery and correction process at DFAS Perform discovery effort on critical systems BAM Tool to mitigate and assist with the tracking, and reporting of undistributed disbursement and collection balances and resolve deficiencies identified as part of this discovery and correction process at DFAS Document processes and controls for reconciling, tracking, and reporting unsupported undistributed disbursements and collections and resolve deficiencies identified as part of this discovery and correction process at DFAS Prepare and submit the DFAS FBWT Validation package in accordance with the Undersecretary of Defense (Comptroller) (OUSD(C)) business rules Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 1st Qtr, FY 2009 1st Qtr, FY 2009 3rd Qtr, FY 2009 4th Qtr, FY 2009 Milestone: Complete internal validation of Collections and Disbursements process Complete implementation of improved RWO Performer process Assert audit readiness for Collections and Disbursements Complete internal validation of audit readiness for RWO Performer Assert audit readiness of RWO Performer D-2-2 C. Planned Milestones Beyond Fiscal Year 2009: N/A D-2-3 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Procure to Pay Processes, General Fund. Navy’s Procure to Pay segment encompasses the Reimbursable Work Order (Grantor), Supplies and Materials, Communications, Leases, Subsistence-in-Kind, Transportation of People, Transportation of Things and Other Contractual Services processes. Accounts Payable (A/P) are not posted in a timely manner or at all for Other Contractual Services transactions. Reporting of Rent, Communications and Utilities is also inconsistent. Accounts Payable recorded through Navy Enterprise Maintenance Automated Information Systems (NEMAIS) and overall in the Standardized Accounting and Reporting System (STARS) One Pay A/P process is not in accordance with the Federal Accounting Standards Advisory Board (FASAB) Accounting Standards. This weakness replaces Financial Reporting of Accounts Payable and Accounts Receivable, General Fund, previously reported in the DON Statement of Assurance, to better align with the Financial Improvement Program segments. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2005 (as Financial Reporting of Accounts Payable, General Fund) Original Targeted Correction Date: 2nd Qtr, FY 2008 Targeted Correction Date in Last Report: 1st Qtr, FY 2011 Current Target Date: 4th Qtr, FY 2011 Reason for Change in Dates: The DON Financial Improvement Program has moved to discovery, validation and assertion by segment, versus line item. The Procure to Pay segment looks at business processes that are broader than the material weakness it replaces, “Financial Reporting of Accounts Payable, General Fund). Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. D-2-4 Results Indicator: The weakness is considered resolved when all related deficiencies have been mitigated by corrective actions and through testing. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Discovery and documentation of electronic process (focus on Wide Area Work Flow (WAWF)) B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2009 Milestone: Confirm Audit Readiness of Reimbursable Work Order (Grantor) Segment C. Planned Milestones Beyond Fiscal Year 2009: Date: 3rd Qtr, FY 2010 3rd Qtr, FY 2010 3rd Qtr, FY 2010 1st Qtr, FY 2011 3rd Qtr, FY 2011 3rd Qtr, FY 2011 3rd Qtr, FY 2011 Milestone: Confirm Audit Readiness of Transportation of People Segment Confirm Audit Readiness of Transportation of Things Segment Confirm Audit Readiness of Subsistence-in-Kind Segment Confirm Audit Readiness of Communications Segment Confirm Audit Readiness of Other Contractual Services Segment Confirm Audit Readiness of Supplies and Materials Segment Confirm Audit Readiness of Leases Segment D-2-5 4th Qtr, FY 2011 Assert Audit Readiness D-2-6 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of General Equipment, General Fund. The Navy is currently working with the Office of the Under Secretary of Defense (Acquisition, Technology and Logistics) and Navy major commands to fully implement Statement of Federal Financial Accounting Standard No.23, “eliminating the category national defense property, plant and equipment.” Reclassification of some property that is currently considered Military Equipment to General Equipment will increase the materiality of this line item in future years. Due to lack of supporting documentation, improper interpretation of guidance, underutilization of the accounting system of record and system limitations, the Navy cannot establish and/or support ownership and valuation of General Equipment. Additionally, the Navy cannot substantiate that the asset records in accounting system of record represent all General Equipment assets. For the assets included in the accounting system of record, the Navy cannot include all ancillary costs to the asset or assign a correct useful life. Finally, the Navy’s inability to reconcile their property accountability systems with their financial system causes their presentation and disclosure of the assets to be inaccurate. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2007 Original Targeted Correction Date: 1st Qtr, FY 2009 Targeted Correction Date in Last Year's Report: 1st Qtr, FY 2009 Current Target Date: 4th Qtr, FY 2013 Reason for Change in Dates: The General Equipment assertion date utilized in the previous Statement of Assurance was based on a plan put together in FY 2005. Since no resources were applied to work the milestones in that original plan, the dates had to be changed due to the prior reprioritization of resources and effort. Validation Process: All corrective actions are certified by responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management review. D-2-7 Results Indicator: The weakness is considered resolved when management asserts that the General Equipment segment is ready for audit and Department of Defense, Office of Inspector General (DoDIG), and Naval Audit Service or other auditors confirm that: General Equipment systems and interfaces are compliant; all required assets are recorded in General Equipment systems; and reported assets do exist. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Documented end to end process and identifying key controls in the process B. Planned Milestones through Fiscal Year 2009: Date: 3rd Qtr, FY 2009 Milestone: Complete Baseline Discovery C. Planned Milestones Beyond Fiscal Year 2009: Date: 2nd Qtr, FY 2010 1st Qtr, FY 2013 1st Qtr, FY 2013 1st Qtr, FY 2013 3rd Qtr, FY 2013 4th Qtr, FY 2013 Milestone: Evaluate Key Controls Implement Corrective Action to Value New Assets at Historical Cost Complete Baseline Revaluation Implement Process to Periodically Inventory Assets Complete Internal Validation of Audit Readiness Assert Audit Readiness D-2-8 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Military Equipment, General Fund. The Navy cannot establish or support ownership and valuation of military equipment due to (1) lack of supporting documentation, (2) underutilization of the accounting system of record and (3) system limitations. Additionally, the Navy cannot substantiate that the asset records in accountable systems of record (non-financial) represent all Military Equipment assets and that those assets include all their ancillary costs (freight, inspection, augmentation), or assigned correct useful life. Legacy information systems did not maintain a historical cost baseline; therefore, the Navy cannot properly record and maintain the value of military equipment. Further, accountable systems of record are not tied to the accounting systems, hampering accurate valuation of assets. Reclassification of some property that is currently considered Military Equipment to General Equipment will affect the accurate reporting of this line item. The Navy has not properly recorded and presented contract financing interim payments as capitalized Military Equipment, due to inadequate and conflicting policy. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2005 Original Targeted Correction Date: 1st Qtr, FY 2009 Targeted Correction Date in Last Year's Report: 1st Qtr, FY 2009 Current Target Date: 4th Qtr, FY 2013 Reason for Change in Dates: The Navy based their original Military Equipment assertion date on several assumptions that changed in the past year. It took longer than initially anticipated to identify all the Navy accountable systems of record and, in some cases, enter the Military Equipment into those systems. As a result, some accountable systems of record and their associated Military Equipment are still not linked to the Department of Defense (DoD) Item Unique Identification (IUID) Registry as required. In addition, a methodology and capability to account for significant modifications to Military Equipment has not yet been established. D-2-9 Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the Navy meets Federal Accounting Standards for the financial reporting of Property, Plant and Equipment. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: • Government Accountability Office (GAO), Report GAO-01-244 "Report on the Department of Defense Fiscal Year 2001 Major Management Challenges and Program Risks," dated January 16, 2001 Department of Defense, Office of Inspector General Report D-2004-036, "Independent Auditor’s Report on the Department of Defense Fiscal Year 2003 Agency-Wide Principal Financial Statements," dated December 10, 2003 DoDIG, Report D-2008-042, “Reporting of Contract Financing Interim Payments on the DoD Financial Statements,” dated January 31, 2008 DoDIG, Report D-2008-103, “Memorandum Report on Internal Controls Over the U.S. Special Operations Command Military Equipment Baseline Valuation Effort,” dated June, 13, 2008 GAO, GAO Report GAO-05-284T, "Fiscal Year 2004 U.S. Government Financial Statements," dated February 9, 2005 Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. • • • • • Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Developed a system to maintain the baseline data - Capital Asset Management System – Military Equipment (CAMSME) Worked with the Office of Secretary of Defense Property and Equipment (OSD P&E) policy office to develop business rules, which were reviewed by the DoDIG and GAO and approved by the Deputy Chief Financial Officer (DCFO) Completed D-2-10 Completed Completed Maintaining baseline valuation of all ME in CAMS-ME Completed load of Naval Vessel Registry (NVR) and Aircraft Inventory and Readiness Reporting System (AIRRS) data into IUID (Item Unit Identification) Registry and working on electronic interface with the IUID Registry Conducted collaborative effort to re-engineer process to collect information at the contract level. Publish policy to support the re-engineered processes and policies Completed B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 Milestone: Complete Discovery Activities at Pilot Program Office(s) C. Planned Milestones Beyond Fiscal Year 2009: Date: 1st Qtr, FY 2010 2nd Qtr, FY 2012 2nd Qtr, FY 2013 2nd Qtr, FY 2013 2nd Qtr, FY 2013 2nd Qtr, FY 2013 4th Qtr, FY 2013 Milestone: Develop “To Be” Environment within Navy ERP Implement “To Be” Environment within Navy ERP Implement at NAVAIR Implement at NAVSEA Implement at SPAWAR Implement across remaining Segments Assert Audit Readiness D-2-11 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Operating Materials and Supplies (OM&S), General Fund. The Navy does not perform and document annual physical inventories of OM&S or comply with established policy to require source documentation be provided to support or provide a clear and concise audit trail to the reported OM&S dollar values. Additionally, the Navy does not provide adequate oversight of contract work performed to modify the OM&S updating and reporting process. Legacy systems were designed for material management purposes but not designed to capture any financial information, therefore, the Navy cannot maintain the historical cost data necessary to comply with Statement of Federal Financial Accounting Standards. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2005 Original Targeted Correction Date: 4th Qtr, FY 2011 Targeted Correction Date in Last Year's Report: 4th Qtr, FY 2011 Current Target Date: 2nd Qtr, FY 2015 Reason for Change in Dates: The Navy Financial Improvement Program (FIP) strategy for OM&S was modified to a two-prong strategy consisting of the following efforts: (1) correct all deficiencies for OM&S maintained in systems that will not transition to Navy Enterprise Resource Planning (ERP); and (2) data cleansing for OM&S maintained in systems that will transition to Navy ERP. Since the inclusion of the material portion of OM&S assets in the Navy ERP implementation will not be complete until 2015, the Navy FIP assertion date was modified to reflect that dependency. Validation Process: All corrective actions are certified by responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management review. D-2-12 Results Indicator: The weakness is considered resolved when management asserts that the OM&S segment is ready for audit and Department of Defense, Office of Inspector General (DoDIG), and Naval Audit Service or other auditors confirm that: OM&S systems and interfaces are compliant; all required assets are recorded in OM&S systems; and reported assets do exist. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: • • DoDIG Report D-2003-039, “Report on the Naval Supply Systems Command Revaluation of Inventory to Latest Acquisition Cost,” dated December 31, 2002 DoDIG Report D-2004-036, “Independent Auditor’s Report on the Department of Defense Fiscal Year 2003 Agency-Wide Principal Financial Statements,” dated December 10, 2003 DoDIG Report D-2007-048, “Reporting of Navy Sponsor owned Material Stored at the Space and Naval Warfare Systems Centers,” dated January 26, 2007 DoDIG Report D-2007-085, “Reporting of Navy Sponsor owned Material Stored at the Naval Air Systems Command Activities,” dated April 23, 2007 Naval Audit Service Audit Report, N2007-0047, “Industrial Logistics Support Management Information System,” dated July 31, 2007 Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. • • • • Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Naval Audit Service compliance audits in the Industrial Logistics Support Management Information System (ILSMIS) and Ordnance Information System (OIS), which identified nine deficiencies, ranging from adopting a Moving Average Cost valuation method to maintaining readily available audit trails and documentation D-2-13 B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 Milestone: Correct the deficiencies within ILSMIS and OIS that were discovered in Naval Audit Service compliance audits. C. Planned Milestones Beyond Fiscal Year 2009: Date: 4th Qtr, FY 2010 4th Qtr, FY 2011 4th Qtr, FY 2011 4th Qtr, FY 2013 1st Qtr, FY 2015 2nd Qtr, FY 2015 Milestone: Resolve Open Policy Issues and Issue Clarifying Guidance Confirm Functional Requirements Resident in Navy ERP Confirm To Be Environment Systems of Record Implement OM&S Capability Consistent with Navy ERP Rollout Complete Internal Validation of Audit Readiness Assert Audit Readiness D-2-14 (TAB D-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY GENERAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Real Property, General Fund. Due to lack of supporting documentation and system limitations, the Navy cannot post timely transactions to establish or support the valuation of Construction-in-Progress (CIP), and establish or support the valuation and ownership of Real Property. The Navy lacks standardized procedures for transferring of real property from Naval Facilities Engineering Command (NAVFAC) to the receiving entities. The Navy cannot validate preponderant users of all real property and reconcile their inventory with Department of Defense (DoD) records in accordance with Preponderance of Use policy. Additionally, the DoD Preponderance of Use policy is not compliant with Generally Accepted Accounting Principles (GAAP) because it perpetuated a previously established accounting convention that GAAP does not recognize. System deficiencies prevent the implementation of elements of GAAP and the United States Government Standard General Ledger (USSGL). Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 2nd Qtr, FY 2009 Targeted Correction Date in Last Year's Report: 2nd Qtr, FY 2009 Current Target Date: 2nd Qtr, FY 2013 Reason for Change in Dates: The targeted correction date changed due to: 1) implementation of the revised 1354 process (ownership transfer), which requires completion of a full cycle; and 2) underestimation of the level of effort required to define and implement a periodic inventory process for real property assets. Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. D-2-15 Results Indicator: The material weakness will be corrected when a process and internal control system is developed and implemented to ensure that the Navy has adequate documentation to support accurate and timely Real Property estimates and valuations. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: • • • • • Department of Defense Inspector General (DoDIG) Report. D-2006-072, “Internal Controls Related to Department of Defense Real Property,” dated April 6, 2006 DoDIG Report. D-2007-48, “Report on Navy Sponsor Owned Material Stored at the Space and Naval Warfare Systems Centers,” dated January 26, 2007 DoDIG Report. D-2007-85, “Reporting of Navy Sponsor Owned Material Stored at the Naval Air Systems Command Activities,” dated April 23, 2007 DoDIG Report. D-2008-072, “Controls Over Army Real Property Financial Reporting,” dated March 28, 2008 Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Documented the “As-is” process for acquire by construction, acquire by other than construction, maintaining asset information and the disposal of assets. B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 4th Qtr, FY 2008 2nd Qtr, FY 2009 2nd Qtr, FY 2009 Milestone: Implement MILCON Reimbursable Corrective Action Implement BRAC NRV Corrective Action Implement Capital Lease Corrective Action Implement Capital Improvement to Leases Corrective Action D-2-16 2nd Qtr, FY 2009 3rd Qtr, FY 2009 4th Qtr, FY 2009 4th Qtr, FY 2009 4th Qtr, FY 2009 Implement Design Breakage Corrective Action Implement 1354 Corrective Action Implement Document Retention Corrective Action Implement Preponderant User Corrective Action Complete To Be Process Documentation C. Planned Milestones Beyond Fiscal Year 2009: Date: 1st Qtr, FY 2013 1st Qtr, FY 2013 1st Qtr, FY 2013 2nd Qtr, FY 2013 Milestone: Implement Periodic Inventory Corrective Action Complete Baseline Revaluation Complete Internal Validation of Audit Readiness Assert Audit Readiness D-2-17 (TAB D-3) MATERIAL WEAKNESSES CORRECTED THIS PERIOD “Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Environmental Liabilities, Navy General Fund. Recent modifications to the Financial Management Regulations had resulted in potential issues for reporting current and non-current liabilities since these were to be accounted for at the site level. In addition, in a previous year, testing of internal controls discovered deficiencies in the justification of data used to estimate the cost of an environmental project. Navy commands have taken steps to correct deficiencies noted in testing. The DON asserted audit readiness for Environmental Liabilities – Weapons Systems on Dec 31, 2007. The DON is currently finishing validation for the remaining Environmental Liabilities sub-segments – Defense Environmental Restoration Program (DERP), Base Realignment and Closure (BRAC) and Other Environmental Liabilities (OEL). The planned assertion date for these areas is Dec 31, 2008. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2007 Original Targeted Correction Date: 3rd Qtr FY 2007 Targeted Correction Date in Last Year’s Report: 3rd Qtr FY 2008 Current Target Date: N/A Reason for Change in Date: N/A Validation Indicator: Review of the validation packages is conducted by the responsible components upon completion and reviewed through on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when an internal control system is developed and implemented to provide reasonable assurance that Environmental Liabilities for the DERP, BRAC, OEL, and Weapons Systems programs are presented fairly on the DON financial statements. D-3-1 Source(s) Identifying Weakness: Management Risk Assessments and Internal Control Test Results, FY 2006 and 2007. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Completed Completed Milestone: Weapons Systems General Fund has been asserted Began reporting Non-DERP on the financial statements Completed all work for DERP. Upon successful review and testing of effective internal controls, DERP will be asserted on the financial statements Awarded task orders and began survey of DON installations and activities Documented and completed DERP and Base Realignment and Closure processes and procedures Conducted a pilot for the Non-DERP environmental liabilities to determine standard methodology for identifying, estimating, reporting and maintaining the liability Selected a data storage system for Non-DERP environmental disposal liabilities Completed draft of standard operating procedures for maintaining, reviewing, and reporting Non-DERP environmental disposal liabilities estimates Completed standard operating procedures for estimating environmental disposal liabilities for military equipment, including the nuclear ships/subs Reviewed and validated the inventory of active ships Determined environmental disposal methodology for active ships/subs Completed disposal estimates and determined environmental disposal liability portion for active ships/subs Completed Completed Completed Completed Completed Completed Completed Completed Completed D-3-2 Completed Set up reporting procedures to review estimates and accrue the liability over the useful life of the active ship, implemented on the June 2006 DON Financial Statements Completed and documented processes and procedures for implementation and validation of Spent Nuclear Fuel (SNF) Completed methodology for estimating and reporting SNF Completed environmental disposal liability estimates for nuclear ships/subs Completed environmental disposal liability estimates for inactive conventional ships/subs Assess Environmental Disposal Liabilities for Conventional Weapon Systems Completed Completed Completed Completed Completed D-3-3 (TAB E-1) LISTS OF ALL UNCORRECTED AND CORRECTED MATERIAL WEAKNESSES— NAVY WORKING CAPITAL FUND Uncorrected Weaknesses Identified During the Period: Quarter (QTR) and Fiscal Year (FY) Targeted Correction Date 1st Qtr, FY 2009 1st Qtr, FY 2011 Title Page # Category: Financial Reporting Collections and Disbursements Category: Financial Reporting Procure to Pay Processes E-2-1 E-2-3 Uncorrected Weaknesses Identified During Prior Periods: Correction Qtr & FY Date Year First Reported Per Last Annual Statement Per This Annual Statement Title Category: Financial Reporting Inventory Category: Financial Reporting General Equipment Category: Financial Reporting Real Property Page # FY 2005 3rd Qtr, FY 2012 1st Qtr, FY 2013 E-2-6 FY 2007 1st Qtr, FY 2009 1st Qtr, FY 2013 E-2-9 FY 2006 2nd Qtr, FY 2009 2nd Qtr, FY 2013 E-2-12 E-1-1 (TAB E-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY WORKING CAPITAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Collections and Disbursements, Navy Working Capital Fund. Navy Working Capital Fund activities do not reconcile cash accounts to the Department of Treasury cash account balance on a consistent basis. Allowance for Doubtful Accounts is not established or recorded and interest is not accrued for past due Accounts Receivable (A/R). There is untimely processing of demand letters and the writing off of uncollectible A/R. In addition, Accounts Payable is not posted prior to disbursements, which results in unmatched disbursements and collections. This weakness replaces Financial Reporting of Fund Balance with Treasury, Navy Working Capital Fund, previously reported in the DON Statement of Assurance, to better align with the Financial Improvement Program segments. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2006 (as Financial Reporting of Fund Balance with Treasury, Navy Working Capital Fund) Original Targeted Correction Date: 4th Qtr, FY 2008 Targeted Correction Date in Last Year's Report: 1st Qtr, FY 2009 Current Target Date: 1st Qtr, FY 2009 Reason for Change in Dates: The cancellation of the Compensating Control Tool and the new development of the DFAS/CL Business Activity Monitoring (BAM) Tool to assist in the resolution of Unmatched Disbursements (UMDs) resulted in the change of the assertion date. Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the DON has developed and implemented a process and internal control system to ensure a proper reconciliation of Command/Activity accounting reports and records with Treasury’s reports and records. This will be documented by submission of Management Assertion. E-2-1 Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Implemented Navy Enterprise Resource Planning (ERP) for Naval Air Systems Command (NAVAIR) Naval Air Warfare Center (NAWC) Corrected Deficiencies: DDRS-B Direct Feed crosswalk issues for Naval Research Lab (NRL) Completed Discovery and Documentation of all Material Business Processes for Naval Facilities Engineering Command (NAVFAC) Transitioned NRL to A-123 Sustainment Completed Completed Completed B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2008 1st Qtr, FY 2009 1st Qtr, FY 2009 3rd Qtr, FY 2009 4th Qtr, FY 2009 Milestone: Complete internal validation of Collections and Disbursements process Complete implementation of improved RWO Performer process Assert audit readiness for Collections and Disbursements Complete internal validation of audit readiness for RWO Performer Assert audit readiness of RWO Performer C. Planned Milestones Beyond Fiscal Year 2009: N/A E-2-2 (TAB E-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY WORKING CAPITAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Procure to Pay Processes, Navy Working Capital Fund. Navy’s Procure to Pay segment encompasses the Reimbursable Work Order (Grantor), Supplies and Materials, Subsistence-in-Kind, Communications, Leases, Transportation of People, Transportation of Things and Other Contractual Services processes. Deficiencies in this area include: the inaccurate input of source documentation into Wide Area Work Flow (WAWF) that may result in unmatched collections, invalid billings, and duplicate entries if certain unique identifiers are not input correctly. In some cases, WAWF invoices that are usually received electronically for contract services are submitted in hard copy, which causes a delay in payment and may result in unmatched disbursements. Additionally, audit trail responsibilities need to be clarified for the Mechanization of Contract Administration Services (MOCAS) system to ensure that there is proper supporting documentation for the proprietary and budgetary accounts for Accounts Payable. Lastly, accruals are being executed inconsistently and do not always comply with the standards outlined by GAAP. This weakness replaces Financial Reporting of Accounts Payable and Accounts Receivable, Navy Working Capital Fund, previously reported in the DON Statement of Assurance, to better align with the Financial Improvement Program segments. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2005 (as Financial Reporting of Accounts Payable, Navy Working Capital Fund) Original Targeted Correction Date: 2nd Qtr, FY 2008 Targeted Correction Date in Last Report: 1st Qtr, FY 2011 Current Target Date: 1st Qtr, FY 2011 Reason for Change in Dates: N/A Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. E-2-3 Results Indicator: The weakness is considered resolved when all related deficiencies have been mitigated by corrective actions and through testing. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Discovery and documentation of electronic process of WAWF B. Planned Milestones through Fiscal Year 2009: Date: 4th Qtr, FY 2009 Milestone: Confirm Audit Readiness of Reimbursable Work Order (Grantor) Segment C. Planned Milestones Beyond Fiscal Year 2009: Date: 3rd Qtr, FY 2010 3rd Qtr, FY 2010 3rd Qtr, FY 2010 1st Qtr, FY 2011 3rd Qtr, FY 2011 3rd Qtr, FY 2011 Milestone: Confirm Audit Readiness of Transportation of People Segment Confirm Audit Readiness of Transportation of Things Segment Confirm Audit Readiness of Subsistence-in-Kind Segment Confirm Audit Readiness of Communications Segment Confirm Audit Readiness of Other Contractual Services Segment Confirm Audit Readiness of Supplies and Materials Segment E-2-4 3rd Qtr, FY 2011 4th Qtr, FY 2011 Confirm Audit Readiness of Leases Segment Assert Audit Readiness E-2-5 (TAB E-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY WORKING CAPITAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Inventory, Navy Working Capital Fund. The Navy cannot maintain accurate inventory values and clear audit trails by Accounting System of Record (ASR) to permit the tracing of transactions from the source documentation to the reported total dollar values on the Inventory line item on Navy’s Financial Statements. The Navy misclassified and reported Sponsor Owned Material as Operating Materials and Supplies (OM&S) due to control deficiencies in following existing guidance, performance of annual physical inventories and oversight of contracts. Legacy systems cannot maintain the historical cost data necessary to comply with Statement of Federal Financial Accounting Standards. As a result, the DON is unable to accurately account for, value, and report inventory on financial statements in accordance with Generally Accepted Accounting Principals and Federal Accounting Standards Advisory Board Statements of Federal Financial Accounting Standards. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2005 Original Targeted Correction Date: 4th Qtr, FY 2011 Targeted Correction Date in Last Year's Report: 3rd Qtr, FY 2012 Current Target Date: 1st Qtr, FY 2013 Reason for Change in Dates: Larger efforts to modernize, replace, and validate multiple Inventory systems and processes are anticipated. Validation Process: All corrective actions are certified by responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management review. Results Indicator: The weakness is considered resolved when management asserts that inventory are ready for audit and Department of Defense, Office of Inspector General (DoDIG), and Naval Audit Service or other auditors confirm that: inventory systems and interfaces are E-2-6 compliant; all required assets are recorded in inventory systems; and reported assets do exist. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: • • • • DoDIG, Report D-2003-039, “Report on the Naval Supply Systems Command Revaluation of Inventory to Latest Acquisition Cost,” dated December 31, 2002 DoDIG, Report D-2007-085, “Reporting of Navy Sponsor-Owned Material Stored at the Naval Air Systems Command Activities,” dated April 23, 2007 Naval Audit Service, Audit Report N2007-0047, “Industrial Logistics Support Management Information System,” dated July 31, 2007 Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Included Progress to Date: A. Completed Milestones: Date: Completed Milestone: Implemented Navy Enterprise Resource Planning (ERP) for Naval Air Systems Command (NAVAIR) Naval Air Warfare Center (NAWC) Completed initial discovery efforts for Naval Supply Systems Command (NAVSUP) Inventory • Issue Processing Process • Receipt Processing Process • Stock-In-Transit Processing • Inventory Adjustment Processing • Carcass Tracking Process • Inventory Daily Inventory Reconciliation (Generalized) • Inventory Stock-in-Transit Follow-up Process • Inventory Material Financial Control System Inventory Accounting Macro Processing • Inventory Material Financial Control System (MFCS) Billing Function • Inventory General Ledger Posting Submitted Naval Research Laboratory’s (NRL) Validation Package for Inventory and Related Property Completed Completed E-2-7 Completed Transitioned NRL to A-123, Appendix A Sustainment and Testing B. Planned Milestones through Fiscal Year 2009: N/A C. Planned Milestones Beyond Fiscal Year 2009: Date: 2nd Qtr, FY 2010 2nd Qtr, FY 2010 2nd Qtr, FY 2011 Milestone: Resolve COSAL policy and confirm ability to handle in NERP Resolve repairables policy and confirm ability to handle in NERP Implement a sustainable physical inventory process that includes regular reconciliations supported by documentation and internal controls Implement a sustainable, auditable process to track and document “in-transit” inventory moving between systems, Service organizations, or third-party inventory control points consistent with NERP implementation Implement NERP at NAVICP including ability to value inventory based on MAC Complete internal validation of Audit Readiness Assert Audit Readiness 2nd Qtr, FY 2011 2nd Qtr, FY 2011 4th Qtr, FY 2012 1st Qtr, FY 2013 E-2-8 (TAB E-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY WORKING CAPITAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of General Equipment, Navy Working Capital Fund. The Navy is currently working with the Office of the Under Secretary of Defense (Acquisition, Technology and Logistics) and Navy major commands to fully implement Statement of Federal Financial Accounting Standard No. 23, “eliminating the category national defense property, plant and equipment.” Due to lack of supporting documentation, improper interpretation of guidance, underutilization of the accounting system of record and system limitations, the Navy cannot establish and/or support ownership and valuation of General Equipment. Additionally, the Navy cannot substantiate that the asset records in accounting system of record represent all General Equipment assets. For the assets included in the accounting system of record, the Navy cannot include all ancillary costs to the asset or assign a correct useful life. Finally, the Navy’s inability to reconcile their property accountability systems with their financial system causes their presentation and disclosure of the assets to be inaccurate. Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 1st Qtr, FY 2009 Targeted Correction Date in Last Year's Report: 1st Qtr, FY 2009 Current Target Date: 4th Qtr, FY 2013 Reason for Change in Dates: The General Equipment assertion date utilized in the previous Statement of Assurance was based on a plan put together in FY 2005. Since no resources were applied to work the milestones in that original plan, the dates had to be changed due to the prior reprioritization of resources and effort. Validation Process: All corrective actions are certified by responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management review. E-2-9 Results Indicator: The weakness is considered resolved when management asserts that General Equipment are ready for audit and Department of Defense, Office of Inspector General (DoDIG), and Naval Audit Service or other auditors confirm that: General Equipment systems and interfaces are compliant; all required assets are recorded in General Equipment systems; and reported assets do exist. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Included Progress to Date: A. Completed Milestones: Date: Completed Milestone: Document Military Sealift Command (MSC) General Property, Plant and Equipment Business Process for Asset Procurement, Month End Process and Asset Retirement Implemented Navy Enterprise Resource Planning (ERP) for Naval Air Systems Command (NAVAIR) Naval Air Warfare Center (NAWC) Completed Discovery efforts for Naval Facilities Engineering Command (NAVFAC) General Property, Plant and Equipment (GPP&E) Funding and Procurement, Recording GPP&E, and Monthly/Quarterly GPP&E Reporting Completed Discovery efforts for Naval Sea Systems Command’s (NAVSEA) General Equipment processes: • Property Needed • Funding • Procurement • Receipt & Recordation • Tracking, Accounting, Reporting & Review • Disposal, Transfer & Loan Submitted Naval Research Laboratory’s (NRL) Validation Package for General Property, Plant and Equipment Transitioned NRL to A-123, Appendix A Sustainment and Testing Completed Completed Completed Completed Completed E-2-10 B. Planned Milestones through Fiscal Year 2009: Date: 3rd Qtr, FY 2009 Milestone: Complete Baseline Discovery C. Planned Milestones Beyond Fiscal Year 2009: Date: 2nd Qtr, FY 2010 1st Qtr, FY 2013 1st Qtr, FY 2013 1st Qtr, FY 2013 3rd Qtr, FY 2013 4th Qtr, FY 2013 Milestone: Evaluate Key Controls Implement Corrective Action to Value New Assets at Historical Cost Complete Baseline Revaluation Implement Process to Periodically Inventory Assets Complete Internal Validation of Audit Readiness Assert Audit Readiness E-2-11 (TAB E-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS NAVY WORKING CAPITAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Real Property, Navy Working Capital Fund (WCF). Due to lack of supporting documentation and system limitations, the Navy cannot post timely transactions to establish or support the valuation of Construction-in-Progress (CIP), and establish or support the valuation and ownership of Real Property. The Navy lacks standardized procedures for transferring of Real Property from Naval Facilities Engineering Command (NAVFAC) to the receiving entities. The Navy cannot validate Preponderant Users of all Real Property and reconcile their inventory with Department of Defense (DoD) records in accordance with Preponderance of Use policy. Additionally, The DoD preponderance-of-use policy is not compliant with Generally Accepted Accounting Principles (GAAP) because it perpetuated a previously established accounting convention that GAAP does not recognize. System deficiencies prevent the implementation of elements of GAAP and the United States Government Standard General Ledger (USSGL). Functional Category: Financial Reporting Component: Department of the Navy Senior Official in Charge: Deputy Assistant Secretary of the Navy (Financial Management Operations) Pace of Corrective Action: Year Identified: FY 2006 Original Targeted Correction Date: 2nd Qtr, FY 2009 Targeted Correction Date in Last Year's Report: 2nd Qtr, FY 2009 Current Target Date: 2nd Qtr, FY 2013 Reason for Change in Dates: The Navy Financial Improvement Program (FIP) strategy for correcting the material deficiencies and asserting the WCF financial statements is by each command. Since the final command does not assert until FY 2013, the current target date was modified to reflect that dependency. Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. E-2-12 Results Indicator: The material weakness will be corrected when a process and internal control system is developed and implemented to ensure that Components have adequate documentation to support accurate and timely Real Property estimates and valuations. This will be documented by submission of Management Assertion. Source(s) Identifying Weakness: • • DoDIG Report D-2006-072, “Internal Controls Related to Department of Defense Real Property,” dated April 6, 2006 Self-reported deficiencies from management reviews and/or Financial Improvement Program (FIP) discovery and documentation. Major Milestones to Included Progress to Date: A. Completed Milestones: Date: Completed Milestone: Document Military Sealift Command (MSC) General Property, Plant and Equipment (GPP&E) Business Process for Asset Procurement, Month End Process and Asset Retirement Implemented Navy Enterprise Resource Planning (ERP) for Naval Air Systems Command (NAVAIR) Naval Air Warfare Center (NAWC) Completed Discovery efforts for Naval Facilities Engineering Command (NAVFAC) GPP&E Funding and Procurement, Recording GPP&E, and Monthly/Quarterly GPP&E Reporting Completed Discovery efforts for Naval Sea Systems Command’s (NAVSEA) Buildings, Improvements & Renovations processes: • Property Need Identification • Procurement • Receipt & Recordation • Tracking, Accounting, Reporting & Review Completed initial discovery efforts for Naval Supply Systems Command (NAVSUP) Construction-in-Progress (CIP) Completed Completed Completed Completed E-2-13 Completed Submitted Naval research Laboratory’s (NRL) Validation Package for GPP&E Transitioned NRL to A-123 Sustainment Completed B. Planned Milestones through Fiscal Year 2009: Date: 3rd Qtr, FY 2008 4th Qtr, FY 2008 4th Qtr, FY 2008 2nd Qtr, FY 2009 2nd Qtr, FY 2009 2nd Qtr, FY 2009 3rd Qtr, FY 2009 4th Qtr, FY 2009 4th Qtr, FY 2009 4th Qtr, FY 2009 Milestone: Complete As Is Process Documentation Implement MILCON Reimbursable Corrective Action Implement BRAC NRV Corrective Action Implement Capital Lease Corrective Action Implement Capital Improvement to Leases Corrective Action Implement Design Breakage Corrective Action Implement 1354 Corrective Action Implement Document Retention Corrective Action Implement Preponderant User Corrective Action Complete To Be Process Documentation C. Planned Milestones Beyond Fiscal Year 2009: Date: 1st Qtr, FY 2013 1st Qtr, FY 2013 1st Qtr, FY 2013 2nd Qtr, FY 2013 Milestone: Implement Periodic Inventory Corrective Action Complete Baseline Revaluation Complete Internal Validation of Audit Readiness Assert Audit Readiness E-2-14 (TAB F-1) LISTS OF ALL UNCORRECTED AND CORRECTED MATERIAL WEAKNESSES MARINE CORPS GENERAL FUND Uncorrected Weaknesses Identified During the Period: Quarter (QTR) and Fiscal Year (FY) Targeted Correction Date 2nd Qtr, FY 2010 1st Qtr, FY 2010 2nd Qtr, FY 2013 Title Category: Financial Reporting Real Property Category: Financial Reporting Internal Use Software Category: Financial Reporting Military Equipment Page # F-2-1 F-2-3 F-2-5 F-1-1 (TAB F-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS MARINE CORPS GENERAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Real Property, General Fund. Evidential matter that supports four of five assertions (i.e., Existence, Completeness, Valuation, Rights and Obligations, and Presentation and Disclosure) is insufficient or not readily available. Real Property valuation is unsupported. Functional Category: Financial Reporting Component: United States Marine Corps Senior Official in Charge: Assistant Deputy Commandant, Programs and Resources (P&R) Department, Fiscal Division (R) Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 2nd Qtr, FY 2010 Targeted Correction Date in Last Year's Report: N/A Current Target Date: 2nd Qtr, FY 2010 Reason for Change in Dates: N/A Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the Marine Corps develops and implements a process and internal control system that ensures proper reconciliation of Command/Activity accounting reports, source documentation, and the control procedures supporting SAS No. 31, as amended, via sufficient competent evidential matter. Source(s) Identifying Weakness: Internal Control over Financial Reporting self-reported deficiencies via management reviews and/or Financial Improvement Initiative (FII) discovery and documentation. F-2-1 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Alternative Valuation Methodology of Real Property B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 Milestone: Source Documentation Improvements with Naval Facilities Engineering Command (NAVFAC) Financial Improvement and Audit Readiness (FIAR) Tool Input Formalize Marine Corps Real Property Document Retention Test NAVFAC Improvements (DD-1354 Availability and internet Navy Facilities Assets Data Store (inFADS) Accuracy) 2nd Qtr, FY 2009 3rd Qtr, FY 2009 C. Planned Milestones Beyond Fiscal Year 2009: Date: 1st Qtr, FY 2010 Milestone: Marine Corps and Department of Navy (DON) Coordination of Real Property Solutions (NAVFAC Source Documentation Sustainment) Test key internal controls related to Real Property evidential matter deficiencies 2nd Qtr, FY 2010 F-2-2 (TAB F-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS MARINE CORPS GENERAL FUND “Uncorrected Weaknesses Identified During the Period” Title and Description of Issue: Financial Reporting of Internal Use Software (IUS), General Fund. No assessment of internal controls that propagate internal use software reporting was conducted. Ownership and functional cognizance of processes that yield an impact to Internal Use Software line item reporting has not yet been established and therefore confidence in reported valuations is compromised. Functional Category: Financial Reporting Component: United States Marine Corps Senior Official in Charge: Assistant Deputy Commandant, Programs and Resources (P&R) Department, Fiscal Division (R) Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 1st Qtr, FY 2010 Targeted Correction Date in Last Year's Report: N/A Current Target Date: 1st Qtr, FY 2010 Reason for Change in Dates: N/A Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the Marine Corps develops and implements a process and internal control system that ensures proper ownership and Command/Activity action for engaging in substantive internal control testing and deficiency remediation. Source(s) Identifying Weakness: Internal Control over Financial Reporting self-reported deficiencies via management reviews and/or Financial Improvement Initiative (FII) discovery and documentation. F-2-3 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Pre-Validation Assertion Package Complete B. Planned Milestones through Fiscal Year 2009: Date: 3rd Qtr, FY 2009 Milestone: Establish workgroups to sustain process that ensures that IUS costs are identified and captured C. Planned Milestones Beyond Fiscal Year 2009: N/A Date: 3rd Qtr, FY 2009 1st Qtr, FY 2010 Milestone: Establish workgroups to sustain process that ensures that IUS costs are identified and captured Test key internal controls related to completeness and ownership of IUS. F-2-4 (TAB F-2) UNCORRECTED MATERIAL WEAKNESS STATUS OF CORRECTIVE ACTIONS MARINE CORPS GENERAL FUND “Uncorrected Weaknesses Identified During Prior Periods” Title and Description of Issue: Financial Reporting of Military Equipment, General Fund. For the Marine Corp activities, evidential matter that supports the five assertions (i.e., Existence, Completeness, Valuation, Rights and Obligations, and Presentation and Disclosure) is insufficient or not readily available. Military Equipment valuation is potentially unsupported. Functional Category: Financial Reporting Component: United States Marine Corps Senior Official in Charge: Assistant Deputy Commandant, Programs and Resources (P&R) Department, Fiscal Division (R) Pace of Corrective Action: Year Identified: FY 2008 Original Targeted Correction Date: 2nd Qtr, FY 2013 Targeted Correction Date in Last Year's Report: N/A Current Target Date: 2nd Qtr, FY 2013 Reason for Change in Dates: N/A Validation Process: All corrective action(s) are certified by the responsible components upon completion and reviewed through an on-site verification, subsequent audit, inspection, quality assurance review, or management control review. Results Indicator: The weakness is considered resolved when the Marine Corps develops and implements a process and internal control system that ensures proper reconciliation of Command/Activity accounting reports, source documentation, and the control procedures supporting SAS No. 31, as amended, via sufficient competent evidential matter. Source(s) Identifying Weakness: Internal Control over Financial Reporting self-reported deficiencies via management reviews and/or Financial Improvement Initiative (FII) discovery and documentation. F-2-5 Major Milestones to Include Progress to Date: A. Completed Milestones: Date: Completed Milestone: Contract Award (Item Unique Identification (IUID) Implementation) B. Planned Milestones through Fiscal Year 2009: Date: 1st Qtr, FY 2009 Milestone: Temporary Data Storage to capture aggregated military equipment asset data from legacy IUID records C. Planned Milestones Beyond Fiscal Year 2009: Date: 2nd Qtr, FY 2010 1st Qtr, FY 2013 2nd Qtr, FY 2013 Milestone: Marking Campaigns to tag Military Equipment assets at major commands Global Combat Support System-Marine Corps (GCSS-MC) Implementation and Sustainment Test key internal controls related to Military Equipment evidential matter deficiencies F-2-6 Acronym ORGANIZATION AAUSN ASN(FM&C) ASN(I&E) ASN(M&RA) ASN(RD&A) AUDGEN BUMED CHINFO CNIC CNO CMC DFAS- CL DoDIG DON DON CIO DON FIP FMB FMC FMO JAG MSC NCIS NAVINSGEN NAVAIR NAVRESFORCOM NAVSEA NAVSUP NETWARCOM OGC OLA ONI ONR OPPA OSBP SPAWAR SSC Assistant for Administration to the Under Secretary of the Navy ASN (Financial Management and Comptroller) ASN (Installations and Environment) ASN (Manpower and Reserve Affairs) ASN (Research, Development and Acquisition) Auditor General of the Navy Bureau of Medicine and Surgery Chief of Information Commander, Navy Installations Command Chief of Naval Operations Commandant of the Marine Corps Defense Finance and Accounting Service, Cleveland OH Department of Defense Inspector General Department of the Navy Department of the Navy Chief Information Officer Department of the Navy Financial Improvement Program ASN(FM&C), Office of Budget ASN(FM&C), Office of Counsel ASN(FM&C), Office of Financial Operations Judge Advocate General Military Sealift Command Naval Criminal Investigative Service Naval Inspector General Naval Air Systems Command Naval Reserve Forces Command Naval Sea Systems Command Naval Supply Systems Command Naval Network Warfare Command Office of General Counsel Office of Legislative Affairs Office of Naval Intelligence Office of Naval Research Office of Program and Process Assessment Office of Small Business Programs Space & Naval Warfare Systems Command SPAWAR Systems Center