Joint Finance/Supply PRC Ongoing Financial Initiatives By Bob Hammond

1. Joint Finance/Supply PRC Ongoing Financial Initiatives By Bob Hammond Chair, Finance Process Review Committee June 20, 2013

2. Outline • Purpose of Briefing • PDC 1035 - Increased Frequency of Interfund Billing (Withdrawn) • Intragovernmental(IGT) Financial Eliminations • DoD Material Weakness • Draft Proposed FMR Change - Receipt and Acceptance • FMR Vol. 4, Ch. 9, Para. 090201 • Treasury Direct Disbursing • Invoice Processing Platform/Collaborative Agency WG

3. Purpose • Provide situational awareness of ongoing initiatives • Perspective of the DoD Finance Process Committee (FPRC) Chair • Cross functional subject matter expert evaluation needed • Potential topics for near-term focused FPRC meetings

4. PDC 1035 - Increased Frequency of Interfund Billing • Treasury Commissioner Memorandum January 14, 2011 goals: • Improve Accuracy of daily Funds Balance with Treasury • Eliminate Monthly Reporting • Move Toward Daily Reporting • PDC 1035 • Staffed to allow frequent Interfund reporting to Treasury vice monthly • Components and Agencies, in coordination with their Supporting Central Accounts Offices determine proposed frequency of reporting • Withdrawn at the request of OUSD(C) sponsor pending analysis of an initiative to centralize reporting to Treasury via Defense Cash Accountability System

5. Intragovernmental (IGT) Financial Eliminations • DoDMaterial Weakness - DoD IG Finding (http://www.dodig.mil/Audit/reports/fy10/10-002.pdf) • Managerial Cost Accounting Concepts and Standards for the Federal Government • Inter-entity expenses or assets and financing sources should be eliminated for any consolidated financial statements covering both entities • DOD FMR, Volume 6B, Chapter 13 • All DOD reporting entities are required to report intragovernmentalaccount balances in their financial statements and eliminate appropriate intra-DOD balances

6. Intragovernmental (IGT) Financial EliminationsContinued • DoD IG Findings • DOD cannot accurately identify most of its intragovernmentaltransactions by customer because DOD systems do not track the buyer and seller data needed to match related transactions • DOD is unable to fully reconcile intragovernmentaltransactions with all Federal partners • DOD acknowledged its inability to reconcile most intragovernmentaltransactions results in adjustments that cannot be fully supported

7. Intragovernmental (IGT) Financial Eliminations Federal Government financial statement level Federal Government DoD Fed Agencies Federal to Federal agency eliminations DoD financial statement level Army Navy AF Fed Agencies DoD Agencies Department financial statement level DoD to DoD agency eliminations DoD Agencies Army Navy AF Fed Agencies Agency financial statement level Within agency eliminations Transactions between buyers and sellers of same agency Transactions between buyers and sellers of DoD agencies Transactions between DoD and other Fed agencies Transactions between agencies and private sector

8. Intragovernmental (IGT) Financial EliminationsContinued • Topic deferred from 2011 Finance Process Review Committee (FPRC) and from FPRC Standard Financial Information Structure & Government – Wide Accounting Interfund Working Group • Focused FPRC briefing may be beneficial to determine if Interfund billing or logistics processes contribute to this material weakness • Determine if process changes are needed • What can we do to help?

9. Draft Proposed FMR ChangeVol. 4, Ch. 9, Para. 090201Receipt and Acceptance • OUSD(C) Draft in Coordination • Accounts payable must be supported by receipt and acceptance • Clarifies receipt and acceptance • IPAC bill initiated by buyer vice seller per Treasury guidance • Treasury Financial Manual Bulletin No. 2013-04, Attachment 2, Intragovernmental Transaction (IGT) Guide, Section 9.1.2.2, “Roles and Responsibilities.”

10. Treasury Direct Disbursing • Concept discussed for “Target Environment” - in ADC 435 • DLMS Revisions for Standard Financial Information Structure (SFIS) (Supply/Finance) • OUSD(C) Current Initiative (P2PPAWG #17)

11. Invoice Processing Platform/Collaborative Agency WG • OUSD(C) Strategic Initiative • Targets Financial Eliminations • Includes Treasury Direct Reporting via IPAC • Relates to Interagency Agreement; former IVAN • Collaborative Agency Working Group formed • OUSD(C)/Treasury Leading • USMC at the Leading Edge

12. Invoice Processing Platform/Collaborative Agency WGContinued • Out of Scope • IPP IGT will look to address Intragovernmental transactions within DoD only, level II and III. Once IPP IGT is proven within DoD IPP IGT will be looked for DoD to Non-DoD transaction, or level I. Also, out of scope for the near-term are: • Interfund • Advance Payments • Assisted acquisitions • Transportation • Purchase Card • Fuel • NOTE: While the aforementioned are considered reimbursable activities, these reimbursable types are currently not supported within the IPP IGT solution scope due to their specific process and data needs. These transactions will be addressed at a later date yet to be determined.

13. Invoice Processing Platform/Collaborative Agency WGContinued • Potential Logistics Implementation Challenges: • Logistics transactions occur outside of IPP • All federal agencies (including DOD) use hundreds of thousands of DLMS/MILSTRIP/FEDSTRIP transactions per month to buy from each other, regardless of the method of payment (e.g. Interfund, IPAC) • These transactions (e.g. requisition, auto pass to seller to fill from stock/vendor/lateral redistribution, partial fill, ship/split ship, cancel, receive, acknowledge receipt, report discrepancy, bill, credit adjustment, etc.) all occur outside of IPP and are all needed to support the ultimate bill (500+ MILS/66 DLMS) • Transactions are integrated and highly automated; triggered via standard processes and business rulesand are subject to DAAS validation edits • Acceptance completed in Wide Area Workflow today • Integrating/replicating this data into IPP may be problematic

14. Invoice Processing Platform/Collaborative Agency WGContinued • Logistics Potential Implementation Challenges (continued) • Bill after receipt for stock items vice upon issue • Stock items may be billed/revenue recognized upon issue, per FMR 1102. • Overall DOD March 2013 Material Receipt Acknowledgement (MRA) was 78.4%, • Relying on MRA and shifting responsibility from seller to buyer for billing may result in immediately universal seller insolvency • Feasibility, data standards/mapping, business rules, interoperability, systems, roles & responsibilities, governance; potential warfighter impacts, cost will need to be considered going forward • Investment Review Board (IRB) model may be useful in assessing existing systems capability, integration, costs and milestone decisions

15. US TREASURY Invoice Processing Platform/Collaborative Agency WG Seller Agreement w/GT&C Agreement w/GT&C Requisition Unfilled Order Obligation Filled Order Receipt/ Acceptance Receivable IPAC Charge IPAC Credit 2. Create & Appr.Agreement 5. SubmitOrder 6. AcceptedOrder 8. SubmitInvoice IPAC IPP 4. Approve Order 10. IPAC PMNT 7. AcceptedOrder IPP & ERP interfaces w/GEX needed 1. Create & Appr.Agreement 3. CreateOrder 9. Approve Invoice Logistics Buy/Sell transactions by DOD and all federal agencies occur outside of IPP today Buyer

16. Seller CAO Buyer CAO Treasury 500+ Integrated MILS transactions Order Submission and Fulfillment *6 (810L) 6 (810L) DAAS 1 2 (870S) 2 (870S) 1 (511R) 1 (511R) 5 (527R) 5 (527R) 4b (856S) 4a (945A) 3 (940R) 4d (867I) Retail Base 511R: Requisition (Order) 527R Material Receipt Acknowledge 810L Logistics Bill 856S Shipment Status 867I Issue 870S: Supply Status 4b(856S) Distribution Depot 4c Item shipped * Stock – bill on drop from inventory; DVD - bill on receipt acknowledgement/acceptance 940R: Material Release 945A: Material Release Confirmation

17. Reply (812 L) 6 5 Request (812R) Discrepancy related Buyer CAO Seller CAO Billing and Discrepancy Report Adjustment Requests and Replies Treasury 6 Reply (812 L) DAAS 5 Request (812R) Bill (Credit) (810 L) 3 3 Bill (Credit) (810 L) SDR Reply 842AR SDR Reply 842AR 2a 1 2b Retail Base SDR Reply 842AR SDR Discrepancy ReportSubmission (842AW) 2 1 SDR (842 AW) Distribution Depot Financial related 4 *Return Wrong Item (*Sequence for US. for FMS mat’l returned prior to credit)

18. 7 Stm of Trans 9 Stm of Trans 8 Collection Seller CAO Buyer CAO Treasury Billing and Interfund Payment 6a (810L) 8 Buyer Interfund Report 6c (810L) 6 Seller Interfund Report 6 (810L) 6b (810L) DAAS 1 Retail Base • 810L Logistics Bill Distribution Depot Interfund Billing is out of scope near term. DAAS Edits logistics transactions, including bills; rejects those failing edits

19. Backup • DOD 7000.14-R, VOLUME 11B, CHAPTER 11, § 1102 • REVENUE RECOGNITION • {Intervening text not shown} • 110202. Policy • {Intervening text not shown} • C. Activities in the Supply Management activity group shall recognize revenue, and related costs, when an item is dropped from inventory for sale or other revenue generating disposition. • {Intervening text not shown} • E. Activities in the Distribution Depots activity group shall recognize revenue, and related costs, based on one of the following events: • EventRevenue Recognized Upon • Receipt of Items Receipt of an Item • Issuance of Items Issuance of an Item