Current State of Coast Guard Financial Management
My post, "Why modernize? An Historical Perspective," introduced the first in a series of posts that chronicle our cause for action to modernize. Since then we have discussed "MLC Realignment", "WHEC to WMSL: Our Trackline to an Agile Mission Support Organization" and "Human Resources and an efficient Coast Guard."
This installment, provided by RDML Keith Taylor, CG-8, focuses on our financial management systems. You have read previous posts where I discuss how we arrived at our current state over the last twenty years. This is a look at where we are going. A future post will discuss the current condition of the surface fleet. Through this series we hope to provide a comprehensive narrative that helps to explain where the Coast Guard is today, how we got here, and where modernization is intended to take us. It is important to understand that while I issued 10 Commandant Intent Action Orders in 2006, they are all linked to develop an improved mission execution and mission support structure. As RDML Taylor points out, you can't separate financial management from any facet of mission execution or support. You are an important part of that discussion. I have enjoyed reading your 30+ comments so far on this series and hope to hear more from you.
-----------
Guest Post by RDML Keith Taylor, CG-8 and CFO.
When I originally outlined this guest blog in my mind I was thinking it might be valuable to discuss some of the Coast Guard's financial management history in order to provide a context. But, as I began writing I decided to focus more on where we are today and where we are going with financial management. This is a complex subject with many related areas of emphasis, so I hope this first installment will serve as a jumping off point for a regular discourse on financial management.
Without a doubt, this is an exciting time to be in the Coast Guard. Never have we been more relevant to the Nation, providing maritime safety, security and stewardship around the clock and around the globe. Premier mission execution is always the goal. All of us in the Coast Guard remain steadfastly focused on that imperative...it is our "outcome" and we can never compromise that end-state. With that said, for many years we have had business processes and systems, including those involving financial management, that have not kept pace or been updated to serve us well today or into the future.
We must Modernize the Coast Guard and our cause for action is clear. We must also modernize financial management. These two efforts are inextricably linked. We cannot achieve the goals of Modernization without a modernized financial management enterprise (people, processes, systems, internal controls, organization structure, etc.). The new standardized Coast Guard business processes, including product line management, configuration control, bi-level support, enhanced acquisition structures, unified human capital management, all require a robust, sound and efficient financial management enterprise to be successful. After assessing where we are over the last several months, I am absolutely convinced that we cannot achieve required financial management improvements, including a "clean" audit opinion, without Coast Guard Modernization.
Without a long discussion of how we got here, we have some fundamental, structural deficiencies that are preventing us from achieving a financial audit opinion. For example we have multiple General Ledgers (The general ledger is where accounting transactions are posted as the official financial record of an organization). You have already heard the Commandant discuss the independent financial linkages between the Aviaiton Logistics Center and Coast Guard Yard with the Treasury. In and of itself that might not be a showstopper, but these ledgers are not integrated, are not compliant with U.S. Standard General Ledger criteria and are derived from separate financial systems. These financial systems do not meet federal standards for security, auditability and standardization. Over many years we have created a highly decentralized financial management execution structure. While the focus has been on maximizing operational flexibility at unit level (a very good thing), this philosophy has not served us well from a financial management perspective. People at our units spend too much time accounting for budget authority, making financial transactions and, then later also reconciling those transactions. Today we also lack the internal controls, the policy rigor and the information systems to support a modernized Coast Guard. We also lack a robust human capital strategy to ensure we have the financial management expertise we need to be successful in the future. Finally, and this is clearly my opinion, we have over the years not been rigorous with Financial Management Technical Authority and this has contributed to a severe lack of standardized policy, processes and systems that continue to hurt us today. When I use the term "Technical Authority" it is the same function that our engineers perform in regard to technical issues associated with building a new cutter. It involves an accountable, competent authority to insure appropriate standards are set, and that those standards are met. None of these issues are new, but they all must be addressed as we move forward.
In FY2008, as one major component of financial management modernization, the Vice Commandant chartered the Audit Readiness Planning Team (ARPT). Building upon deliberate remediation work completed in FY2006 and FY2007 and the foundational work of the Financial Management Transformation Task Force (FMTTF) that Admiral Allen chartered in one of his original Commandant Intent Action Orders, (CIAOs) this cross-functional ARPT team, working under my guidance, was comprised of senior CG, DHS and external subject matter experts. They addressed root cause conditions of our material weaknesses (identified in previous audits and our own self assessments) and developed a holistic, actionable plan focused on implementing effective internal controls, remediating and supporting financial reporting, achieving audit readiness, and improving accountability across the enterprise. This work resulted in Version 2.0 of our Financial Strategy for Transformation and Audit Readiness (FSTAR) and in close cooperation with the DHS CFO, we established the following focus areas for FY2009 and FY2010:
- Improving Entity Level Controls (this includes our organizational structure, leadership focus, control environment, etc. -- this is a complex subject that would be worthy of a future discussion) -- We will continue to enhance financial management governance and enterprise-wide management controls.
- Remediating Funds Balance with Treasury (think of this as our checking account with Treasury) -- Representing over $5B on our balance sheet, we will focus on reconciling Military Payroll transactions (over $3.7B of activity in FY2008) with both Treasury and our General Ledger. We have never been able to do this in our history and this represents a critical first step forward.
- Remediating Actuarial Pension Liabilities (this is the unfunded liability we carry on our balance sheet for estimated future military pension requirements) -- At over $25B (yes - $25 billion!) this is the largest line item on both the DHS and CG balance sheets. Fixing this is critical to a consolidated DHS clean audit opinion.
- Remediating General Property, Plant and Equipment (includes all of our cutters, aircraft, boats, shore plant, etc.) -- At over $8B (this is net, original cost less depreciation) this is the largest asset on our balance sheet and requires a two pronged effort -- fix the process we use for new assets as they come on-line and clean up the information concerning current assets. This area touches the entire CG.
This plan was developed in close coordination with the DHS CFO, has been reviewed by the DHS IG and OMB, and was delivered to Congress on December 1st as part of our Financial Management Improvement Plan (FMIP)
While the ARPT was underway, we continued to address weaknesses and made some noteworthy progress. First and foremost, and as reported in the DHS Independent Auditors report, the entity level controls finding for DHS was reduced from a material weakness to a significant deficiency (this is a big improvement in a financial audit) -- the DHS CFO told me directly that this would not have been possible without the strong effort and progress we made in the Coast Guard in this area. This is the first time since we joined DHS that we have reduced any of our material weaknesses.
We also achieved another first in FY2008 -- we fully supported our balance sheet investment balance of $2.9B. In essence, we were able to prove, to the high standard required, that the balance was complete, accurate and properly recorded. Not only was this significant for us, but this line item has a material impact on the DHS balance sheet and our effort moved the Department closer to an auditable position. We also fully supported our contingent legal liabilities balance on the FY2008 balance sheet. Finally, we continued to make substantive progress in the areas of military payroll reconciliation, property, plant and equipment, and construction in progress. We will continue to build upon this work as we execute FSTAR 2.0 and modernize our financial management enterprise.
As a close out of the FY2008 financial management cycle, and as an update to all hands on financial management modernization, I just released ALCOAST 619/08. I hope you find it interesting and helpful. At the end of the day, we have a lot of work to do and we are underway on the correct course. Like Coast Guard Modernization, financial management modernization will be a multi-year effort that will make our Service fundamentally better and in the future equip our service with the authoritative information, systems and processes needed to make sound and transparent decisions.
I am excited by the opportunities in front of us...
Happy Holidays
Keith Taylor
Rear Admiral
Assistant Commandant for Resources
Chief Financial Officer
This installment, provided by RDML Keith Taylor, CG-8, focuses on our financial management systems. You have read previous posts where I discuss how we arrived at our current state over the last twenty years. This is a look at where we are going. A future post will discuss the current condition of the surface fleet. Through this series we hope to provide a comprehensive narrative that helps to explain where the Coast Guard is today, how we got here, and where modernization is intended to take us. It is important to understand that while I issued 10 Commandant Intent Action Orders in 2006, they are all linked to develop an improved mission execution and mission support structure. As RDML Taylor points out, you can't separate financial management from any facet of mission execution or support. You are an important part of that discussion. I have enjoyed reading your 30+ comments so far on this series and hope to hear more from you.
-----------
Guest Post by RDML Keith Taylor, CG-8 and CFO.
When I originally outlined this guest blog in my mind I was thinking it might be valuable to discuss some of the Coast Guard's financial management history in order to provide a context. But, as I began writing I decided to focus more on where we are today and where we are going with financial management. This is a complex subject with many related areas of emphasis, so I hope this first installment will serve as a jumping off point for a regular discourse on financial management.
Without a doubt, this is an exciting time to be in the Coast Guard. Never have we been more relevant to the Nation, providing maritime safety, security and stewardship around the clock and around the globe. Premier mission execution is always the goal. All of us in the Coast Guard remain steadfastly focused on that imperative...it is our "outcome" and we can never compromise that end-state. With that said, for many years we have had business processes and systems, including those involving financial management, that have not kept pace or been updated to serve us well today or into the future.
We must Modernize the Coast Guard and our cause for action is clear. We must also modernize financial management. These two efforts are inextricably linked. We cannot achieve the goals of Modernization without a modernized financial management enterprise (people, processes, systems, internal controls, organization structure, etc.). The new standardized Coast Guard business processes, including product line management, configuration control, bi-level support, enhanced acquisition structures, unified human capital management, all require a robust, sound and efficient financial management enterprise to be successful. After assessing where we are over the last several months, I am absolutely convinced that we cannot achieve required financial management improvements, including a "clean" audit opinion, without Coast Guard Modernization.
Without a long discussion of how we got here, we have some fundamental, structural deficiencies that are preventing us from achieving a financial audit opinion. For example we have multiple General Ledgers (The general ledger is where accounting transactions are posted as the official financial record of an organization). You have already heard the Commandant discuss the independent financial linkages between the Aviaiton Logistics Center and Coast Guard Yard with the Treasury. In and of itself that might not be a showstopper, but these ledgers are not integrated, are not compliant with U.S. Standard General Ledger criteria and are derived from separate financial systems. These financial systems do not meet federal standards for security, auditability and standardization. Over many years we have created a highly decentralized financial management execution structure. While the focus has been on maximizing operational flexibility at unit level (a very good thing), this philosophy has not served us well from a financial management perspective. People at our units spend too much time accounting for budget authority, making financial transactions and, then later also reconciling those transactions. Today we also lack the internal controls, the policy rigor and the information systems to support a modernized Coast Guard. We also lack a robust human capital strategy to ensure we have the financial management expertise we need to be successful in the future. Finally, and this is clearly my opinion, we have over the years not been rigorous with Financial Management Technical Authority and this has contributed to a severe lack of standardized policy, processes and systems that continue to hurt us today. When I use the term "Technical Authority" it is the same function that our engineers perform in regard to technical issues associated with building a new cutter. It involves an accountable, competent authority to insure appropriate standards are set, and that those standards are met. None of these issues are new, but they all must be addressed as we move forward.
In FY2008, as one major component of financial management modernization, the Vice Commandant chartered the Audit Readiness Planning Team (ARPT). Building upon deliberate remediation work completed in FY2006 and FY2007 and the foundational work of the Financial Management Transformation Task Force (FMTTF) that Admiral Allen chartered in one of his original Commandant Intent Action Orders, (CIAOs) this cross-functional ARPT team, working under my guidance, was comprised of senior CG, DHS and external subject matter experts. They addressed root cause conditions of our material weaknesses (identified in previous audits and our own self assessments) and developed a holistic, actionable plan focused on implementing effective internal controls, remediating and supporting financial reporting, achieving audit readiness, and improving accountability across the enterprise. This work resulted in Version 2.0 of our Financial Strategy for Transformation and Audit Readiness (FSTAR) and in close cooperation with the DHS CFO, we established the following focus areas for FY2009 and FY2010:
- Improving Entity Level Controls (this includes our organizational structure, leadership focus, control environment, etc. -- this is a complex subject that would be worthy of a future discussion) -- We will continue to enhance financial management governance and enterprise-wide management controls.
- Remediating Funds Balance with Treasury (think of this as our checking account with Treasury) -- Representing over $5B on our balance sheet, we will focus on reconciling Military Payroll transactions (over $3.7B of activity in FY2008) with both Treasury and our General Ledger. We have never been able to do this in our history and this represents a critical first step forward.
- Remediating Actuarial Pension Liabilities (this is the unfunded liability we carry on our balance sheet for estimated future military pension requirements) -- At over $25B (yes - $25 billion!) this is the largest line item on both the DHS and CG balance sheets. Fixing this is critical to a consolidated DHS clean audit opinion.
- Remediating General Property, Plant and Equipment (includes all of our cutters, aircraft, boats, shore plant, etc.) -- At over $8B (this is net, original cost less depreciation) this is the largest asset on our balance sheet and requires a two pronged effort -- fix the process we use for new assets as they come on-line and clean up the information concerning current assets. This area touches the entire CG.
This plan was developed in close coordination with the DHS CFO, has been reviewed by the DHS IG and OMB, and was delivered to Congress on December 1st as part of our Financial Management Improvement Plan (FMIP)
While the ARPT was underway, we continued to address weaknesses and made some noteworthy progress. First and foremost, and as reported in the DHS Independent Auditors report, the entity level controls finding for DHS was reduced from a material weakness to a significant deficiency (this is a big improvement in a financial audit) -- the DHS CFO told me directly that this would not have been possible without the strong effort and progress we made in the Coast Guard in this area. This is the first time since we joined DHS that we have reduced any of our material weaknesses.
We also achieved another first in FY2008 -- we fully supported our balance sheet investment balance of $2.9B. In essence, we were able to prove, to the high standard required, that the balance was complete, accurate and properly recorded. Not only was this significant for us, but this line item has a material impact on the DHS balance sheet and our effort moved the Department closer to an auditable position. We also fully supported our contingent legal liabilities balance on the FY2008 balance sheet. Finally, we continued to make substantive progress in the areas of military payroll reconciliation, property, plant and equipment, and construction in progress. We will continue to build upon this work as we execute FSTAR 2.0 and modernize our financial management enterprise.
As a close out of the FY2008 financial management cycle, and as an update to all hands on financial management modernization, I just released ALCOAST 619/08. I hope you find it interesting and helpful. At the end of the day, we have a lot of work to do and we are underway on the correct course. Like Coast Guard Modernization, financial management modernization will be a multi-year effort that will make our Service fundamentally better and in the future equip our service with the authoritative information, systems and processes needed to make sound and transparent decisions.
I am excited by the opportunities in front of us...
Happy Holidays
Keith Taylor
Rear Admiral
Assistant Commandant for Resources
Chief Financial Officer
Posted at
8:00 AM
6 Comments:
I guess I'm still confused after reading this post. Did we obtain a clean financial audit for 2008 or not?
I thought that was one of the goals of CIAO on this.
I don't think DHS as a whole obtained a clean audit.
I am hopeful that the financial side of modernization will also mend the severe resource gaps at the field level. Thousands of dollars may suddenly appear during fallout for an expensive one-time purchase, but daily needs go unfunded. Meanwhile, HQ drafts policy brimming with unfunded mandates and it is up to the field units to figure out how to take it out of hide, or not comply fully.
The budget "workarounds" that units developed to end-run the financial process and actually get their needs funded are now being eliminated with modernization (and rightly so) - but there is no replacement source of $$.
At our unit right now, we are facing drastic cutbacks or complete elimination of many core services as modernization kicks in, and we lose bodies and money, but not the responsibilities that went with them.
There must be a better way to communicate financial needs between HQ and the field.
Anonymous is correct, the Department of Homeland Security did not receive a clean opinion on its 2008 financial audit report and we must correct several material weaknesses for DHS to get a clean opinion.
From a technical perspective, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the agency's annual or interim financial statements will not be prevented or detected on a timely basis by the agency's internal controls. Bottom line - A material weakness indicates our policies, procedures or systems, or a combination of those three, are not sufficient enough to allow us to verify the accuracy of our financial reports.
Obtaining a clean opinion remains a top priority for the Coast Guard as was outlined in CIAO #5. However, a clean opinion is several years away because of the magnitude and complexity of our financial management issues, and our need for significant IT system improvements.
Moving forward, we're working closely with DHS on our remediation plan & will provide periodic updates on our progress.
LT B says it well. I'm very concerned that as we carve up the ISC's and create BSU's that we will orphan some of our employees who will be an "army of one," when separated from our BSU.
No one has answered how these one man shows will be covered when they need leave or have unexpected emergencies or illness. The customers they support will be left out in the cold.
Caving up a relatively small ISC into a smaller BSU will make services to the end user harder to obtain. The Command Cadre under the current ISC construct can mitigate the shortages and cover the one man shows when needed with other personnel assets. Under the BSU construct who fills that gap?
Thanks for your comments. As you know, our field commanders are empowered to apply funding to their highest order needs, based upon risk.
The main objective of the modernization effort is to improve service delivery to the public through improved command, control and support systems and processes. To be successful, we must optimize available funding. There will be base transfers necessary as we move forward with modernization. However, we are working to ensure the new, bi-level support structure provides more effective targeting of resources to the most important requirements. Funds will flow more directly to the areas of need rather than through circuitous, multi-pronged distribution paths. This structure should reduce the workload at tactical level units while improving internal controls throughout the organization.
Fallout funding is not a factor of HQ holding funding. In fact, all O&M funding is distributed to the field with the exception of energy (75%). We've always had quarterly spend down validation; it is just the development of recent financial management tools that have improved execution performance. Unfortunately, there will always be circumstances where large contracts cannot be awarded within a fiscal year and this leads to excess funds available in certain accounts. CG-83 works with the Areas and MLCs to pull back those funds and provide them to the Coast Guard's next highest priority needs. In addition, CG-83 does not have detailed visibility "down stream" and relies on the stewardship of field units to ensure proper funds execution.
Thank you again for your comments. We are available to answer any questions as helpful.
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