SITE SEEING: Command Sgt. Maj. Sean Rice, senior enlisted advisor at U.S. Army Security Assistance Command, talks with Soldiers assigned to the aviation maintenance unit of the Colombian Army base in Tolemaida, Colombia on April 6, 2021. CSM Rice joined Brig. Gen. Douglas Lowrey, and his staff, as they visited several sites to see the impact of U.S. security assistance and foreign military sales.
The foreign military sales program begins its first-ever full financial statement audit.
by Curt Bartlett
The first-ever financial audit of the foreign military sales business practices and processes—the most wide-sweeping official external full-scope financial statement audit ever performed on the Security Assistance Account trust fund—has begun.
On February 17, the Office of the Deputy Assistant Secretary of the Army for Defense Exports and Cooperation (DASA (DE&C)) commenced the Security Assistance Account Full Financial Statement Audit across all organizations in the Army Security Assistance Enterprise (SAE), having been notified in 2018 of the upcoming requirement to examine the Foreign Military Sales (FMS) Trust Fund. The Security Assistance Account—which falls under U.S. Code Title 22—has existed for over 50 years. This account currently has over 6,500 active FMS cases being managed by the Army SAE and is valued at over $210 billion in support of 150 international customers.
The Defense Security Cooperation Agency will facilitate this DOD-wide audit engagement being conducted by an independent public accountant (IPA). The two main goals for this audit are to express an opinion on whether the enterprise’s financial statements are in accordance with U.S. generally accepted accounting principles and to report on internal controls related to financial reporting.
WHY AUDIT
The Security Assistance Account Trust Fund is required to undergo a full financial statement audit in fiscal year 2022 by law. Ulysses Rhodes, the DASA (DE&C) policy, resources and audit director, is responsible for oversight of the Army’s portion of the financial audit. He describes the audit cycle as “consisting of various steps needed to go from audit readiness, to audit, and then into the sustainment phase.”
Rhodes continually notes that the audit is not going away—it will remain an annual requirement even in the event of an unmodified opinion (i.e., financial statements are presented fairly). “We go through all of this effort to show our foreign national partners that we are accountable for things being done correctly. Successful audits will establish the transparency our foreign partners desire, give them visibility on their programs, and demonstrate to them that they can trust us with managing their money,” Rhodes said.
THE BEST DEFENSE Brig. Gen. Douglas Lowrey, then commander of U.S. Army Security Assistance Command (USASAC), and his staff watch a virtual training session at a key leader engagement with the Colombian army at the Canton Norte base in Bogota, Colombia on April 8, 2021. (Photos by Richard Bumgardner, USASAC)
ROAD TO AUDIT
To prepare for the audit, during the past three years the Army SAE underwent an extensive business process standardization documentation effort. This effort involved providing stakeholders with effective policies, guidance and support to execute effective business processes, best practices and internal controls. The Army SAE performed gap analysis by going through steps to identify what financial reporting risks exist and if the current controls properly mitigate those risks. Ultimately, the business process standardization work minimizes risk by allowing the enterprise to identify and address findings early on in the process, rather than waiting until the end of the audit.
DASA (DE&C) also established several support mechanisms to respond to audit requests:
- Leveraged the audit documentation and results from other audits to respond to audit requests for the Security Assistance Account Audit.
- Provided resources and plans for audit support across the Army SAE to support Security Assistance Account financial audit activities.
- Developed standard operating procedures for audit response and reference documents to support Army SAE entities in gathering documentation to respond to audit samples.
AUDIT ACCOMPLISHMENTS
During the past three years of preparations, the Army completed several key audit readiness accomplishments:
- Documented and signed eight business processes into policy, ensuring documentation is ready for the audit.
- Identified which will result from the IPA.
- Incorporated within the business process documentation efforts to reduce manual processing and rework.
- Enhanced the Army Process Portal which provides access to the latest business process documentation. The portal, which is accessible to all Soldiers, civilians and contractors with a Common Access Card (CAC), allows end users to access data that helps the Army move toward a culture of audit success.
- Established an Army Security Assistance Account audit support infrastructure to coordinate and manage audit activities for the Army Security Assistance Enterprise.
STRIVING FOR AUDIT IMPROVEMENT
During the same period, the Army’s preparation team identified some areas for improvement essential for auditability:
• Establish an auditable universe of transactions—consisting of multiple organizations and business processes which allow the Army to verify beginning balances and open obligations—by confirming the completeness and availability of Army data before starting the full financial statement audit thereby enhancing knowledge of internal controls and risk mitigation for those business processes.
• Improve accounting policies including those for property, equipment and inventory by implementing key internal controls.
• Enhance information technology and system controls.
• Institute proper accounting system posting logic for initiating and recording transactions across the numerous accounting and feeder systems where most transactions originate.
Addressing these improvement areas will allow us to be auditable with the goal of obtaining an audit opinion on Security Assistance Account financial statements by the year 2030. The IPA will provide an audit opinion on whether Army’s financial statements are fairly presented in accordance with the U.S. generally accepted accounting principles. Between now and 2030, the Army will continue to implement internal controls.
CONCLUSION
Acknowledging the challenges that an audit brings, Rhodes emphasized that “the Army Security Assistance Enterprise is prepared to answer the challenge of this full financial statement audit. At DASA (DE&C), we are extremely grateful for all the extra effort that the Army organizations and our partners are doing for the audit.”
For more information, go to https://www.dasadec.army.mil/.
CURT BARTLETT works in the Policy, Resources and Audit Directorate as senior audit advisor and principal audit readiness officer for the Deputy Assistant Secretary of the Army for Defense Exports and Cooperation and the Army Security Assistance Enterprise. He serves as an active member on the Defense Security Cooperation Agency Senior Executive Steering Committee and Audit Remediation board. Bartlett has a Juris Doctor from the University of Houston Law Center and a Master of Public Policy from the University of Chicago. He is a Certified Public Accountant and a Certified Defense Financial Manager.
