Headlines so far are Pentagon fails financial audit It would never have caught my attention again. But I was in the middle of this conversation when I was on one of the DoD advisory boards, so I understand why the Department of Defense doesn’t count. This experience taught me a valuable lesson about the difference that innovation and imagination and visionary leadership (or lack thereof) make in a large organization.
With audit costs approaching $1 billion annually, the Department of Defense has an opportunity to lead audit modernization. Instead, we chose more of the same.
Department of Defense Audit
To lawthe Department of Defense should provide Congress and the public with an assessment of where it spends its money, and provide transparency in its activities. Count if you know where that money is spent.
DoD audits are a big job. For one thing, it is the country’s largest employer, 2.9 million People (1.3 million active duty, 800,000 reservists, 770,000 civilians.) Audits must count the location and condition of all military equipment, assets, inventories, and supplies. And there are many of them.department has 643,900 assets, deployed on more than 4,860 sites, from buildings to pipelines, roads and fences, as well as 19,700 aircraft and over 290 warships.To complicating audits, department has 326 Various separate financial management systems, 4,700 data warehouses, over 10,000 various decoupled data management systems.
(By the way, just like in the private sector, financial audits and contract audits are separate. The Office of the Inspector General of Defense is responsible for these financial audits of trillions of dollars of assets and liabilities. Defense Contract Audit Agency Responsible for auditing acquisition contracts worth hundreds of billions of dollars. I have the same problem. )
This is the fifth year that the division has received financial statement audit – and failed. The audit was no easy task and required 1,600 auditors (1,450 him from the accounting firm and 150 from the Inspector General’s Office). In 2019, he spent $428 million in audit costs (his $186 million in auditors and $242 million in audit support), plus an additional $472 million to fix issues found in audits. It cost a million dollars.
Invent the future of auditing
division defense Over 40 Recommendation board It is staffed by outsiders who can provide independent perspectives and advice. I served on one of these committees, and our charter was to use lessons from the private sector to improve the quality of our audits.
in defense spending on audits Approaching $1 billion annually It was clear that it would take a decade or more to catch up with private sector auditing standards. But no single company or even an entire industry spends this much on audits. And surprisingly, year after year the Department of Defense seemed to be trying to do the same thing. I realized that I could audit it cheaper and more effectively.
Nothing in our charter asked our advisory board to invent the future. But I asked myself, “What if I could?” What if you could provide the defense sector with new technologies, new approaches to auditing, analytical techniques, audit research and standards, while also creating audit and data management research and a new generation of financial applications and vendors?
The Pentagon once led business innovation
I reminded my fellow Advisory Board members that in 1959, at the dawn of the computer age, the Department of Defense was the largest user of computers for business applications.
But there was no common business programming language. The Pentagon said he wouldn’t wait for one lead effort to create – COBOL programming languageAnd 20 years later it did the same ADA programming language.
With that history in mind, I suggested that we lead again. 5th generation audit practice initiative (of Audit 5.0 Initiative) using machine learning, predictive analytics, intelligent sampling and prediction. The initiative also includes ETL automation, predictive analytics, fraud detection, and new generation audit standards.
moreover,(Generally Accepted Government Auditing Standards (GAGAS), yellow book, of GAO Standards for Federal Internal Controls; green book and the Federal Accounting Standards Advisory Board (FASAB). You can work with private auditing standards bodies (ASB (Auditing Standards Board)) When PCAOB (Public Company Accounting Oversight Board)). Together, the defense sector was able to create a next-generation, machine-driven, semi-automated standard. Additionally, independent accounting firms (KPMG, EY, PwC, Deloitte, etc.) may help create new practices and become partners in the Audit 5.0 initiative.
By investing 10% of the existing audit budget over the next few years, these efforts will create a Defense Audit Center of Excellence that will fund an academic center for advanced audit research and will establish a new 5-10 Launch the “Future of Audit” program to create startups. Each year it becomes the focus of government, industry financial and auditing standards, creating public-private partnerships rather than mandates.
Spinning up these activities will significantly reduce departmental audit costs, standardize the financial management environment, and provide confidence in budgets, auditability and transparency. As a bonus, there will be a new generation of finance, audit and data management start-ups funded by private capital.
road not chosen
I was in awe of my fellow advisory board members. They have spent decades in senior finance and accounting positions in both the public and private sectors. Still, when I pitched the idea, they listened to me politely before moving on to the agenda of providing incremental improvements to the Department of Defense.
It was a disappointment then, but no surprises. The Advisory Board depends on what it is chartered and staffed to do. If asked to provide 10% incremental advice, they will. But if you ask for innovative advice—ten times more advice—you can change the world. But it requires another charter, leadership, people, innovation and imagination.
Ultimately, the Department of Defense, the world’s largest purchaser of accounting services, hinted at a chance to become a leader in creating next-generation auditing tools and services not just for financial audits, but for hundreds of billions of audits. rice field.acquisition contract dollar Defense Contract Audit Agency audit. Now departments can use auditing tools driven by machine learning algorithms to spot fraud by vendors and contractors and predict programs at risk.
- You’re not hiring imaginative people if you get what you ask for
- America’s Defense Leaders Should Seek and Act on Transformative, Contrarian, and Disruptive Advice
- And make sure they have the will and organization to act on it
- I will forward your request for advice for incremental improvements to the consulting firm currently serving the Department of Defense.
- Defense leaders should consider whether spending $1 billion a year on audits will significantly improve the efficiency and control of their departments.
- Or if there might be a better way
Filed Under: Technological Innovation and Great Power Competition |