Department of the Navy: business transformation update: a progress report on DON's business transformation efforts reveals a ste

In recent editions of the Armed Forces Comptroller, we provided an overview of our Navy Enterprise Resource Planning (ERP) program, followed by an introduction of the Department of the Navy's Business Process Transformation Strategy--our current approach to significantly improve the quality of the financial information used to better inform decision making. We emphasized an integrated strategy that was different from past approaches. The current strategy is business-centric versus a strict financial management orientation. Our comptrollers are the primary advocates and change agents, but line managers must have a better understanding of, and take ownership for, their business processes. Finally, a "clean" audit is not the goal of this strategy but, in fact, is the outcome of better-documented, better-controlled business.

As you may recall, our strategy contained four elements that provide a logical, integrated framework for both communication and execution. Specifically, our strategy involves the following:

* The Department of Defense (DoD) Business Transformation Agency (BTA), which provides a broad framework (the "architecture") that includes enterprise-wide systems and standards

* The Navy ERP, which serves as the cornerstone for a better integrated, automated, and controlled business environment

* A coherent transition plan for moving from our current stove-piped, overly complex, automated systems, which includes financial feeder systems

* An overarching Financial Improvement Plan (FIP), which integrates these efforts while documenting processes and testing controls

We've made significant progress within each of these four elements to include building effective collaboration links to ensure that work in one area is clearly communicated to those who are working within other areas. The value of this strategy truly lies in the integrated

nature of our activity, and the following short update on key transformational elements will demonstrate this point.

BTA Activity

We have worked with the BTA to implement the initial Standard Financial Information Structure (SFIS) in the Navy ERP configuration as well as the current Marine Corps accounting system, SABRS. SABRS has completed testing and has demonstrated SFIS compliance and application. Specifically, the Marine Corps is transmitting financial reporting information through the Business Enterprise Information System to demonstrate the use of a standard, SFIS-based, DoD-wide United States Government Standard General Ledger. The Navy ERP also has been configured to become the first target system to follow suit.

Navy ERP

Following an Executive Committee meeting last May, the decision was made to change the order of the first template to deploy the Navy ERP and replace the largest of the former ERP pilots at the Naval Air Systems (NAVAIR) Command. While NAVAIR is an experienced user of this very sophisticated software package, its replacement uses a much improved, different version and, as such, remains a formidable task for two reasons.

First, the change to a new system involves both complex data cleansing and conversion efforts and significant change management activities. This huge enterprise is being asked, wherever possible, to adapt its current business processes to the commercial practices around which the software was designed (that is, to change Navy processes rather than add custom software that will significantly add to cost and complexity).

Second, the requirements to interface with over 20 different systems within the larger DoD business environment--and ensure that those interfaces are adequately tested--presents an equally daunting technical and coordination challenge. Despite the magnitude of the challenge, this implementation is being carefully tracked to ensure a successful October 1, 2007, implementation.

Stay tuned!

The Department of the Navy (DON) FIP

The DON FIP is moving forward as well. Much like the ERP, which is fitting into the larger DoD BTA environment, the FIP is a detailed Navy-Marine Corps execution plan that operates within the Office of the Under Secretary of Defense (Comptroller) Financial Improvement and Audit Readiness (FIAR) framework. As reported in the October 2006 FIAR report to the Congress, the DON is making progress in each of the four key focus areas (Fund Balance with Treasury, Real Property, Environmental Liabilities, and Military Equipment) as well as moving forward in a broader way to prepare the Marine Corps to be the first audit-ready military service.

The DON FIP has been successful in developing a much broader base of understanding about the value of better-documented, better-controlled business processes. Over the past year, we largely have completed an initial period of "discovery" that has identified (and, in some cases, corrected) deficiencies. Next steps will include developing a comprehensive remediation plan that will, in line with resources and systems modernization plans, correct these inherent weaknesses in a consistent and sustainable way. In some cases, however, these corrections must wait for new systems (or systems changes) while, in other cases, meaningful action can be taken in the near term. Finally, these efforts must result in sustainable improvements.

Once corrections have been made, implementation of the process oversight and testing around the internal controls over financial reporting mandated by Appendix A of Office of Management and Budget Circular A-123 (which is much like Sarbanes-Oxley in the private sector) will validate our actions and sustain them over time. In areas where FIP efforts had progressed to the point that meaningful control testing could be conducted, we used A-123 methodology and reported the results in our fiscal year (FY) 2006 Statement of Assurance.

DON financial managers met in early November to review lessons learned and FY 2007 plans. Our FIP trademark, "Know your business--Control your future," was introduced at this conference. Business process transformation represents a long-term investment for the future. Rationalization of our legacy systems and installation of modern ERPs represent a "recapitalization" of our business infrastructure in the same way that our warfighting capability has been transformed and modernized.

In Retrospect

We need to think differently about the way we do business if we are to sustain what we have accomplished and better leverage this investment. The value proposition that would have us believe that better-quality financial information will result in better decisions and better use of the DON and the DoD programs must be tested and reaffirmed. We also must strike the right balance between audit readiness and mission support. Currently, our analysis indicates that there is significant value yet to be gained in terms of improved mission support getting more value for each program dollar.

We're making progress, but we have a long way to go. The beneficiary and primary customer, the warfighter, demands that we keep up the pressure.

(For more information, visit http://www.finance.hq.navy/mil/fmc/default.asp.)

Mark Easton, CDFM

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