Stepped Up ERM

Teresa McKay Director,

Defense Finance and Accounting Service

ASMC Washington Chapter

September 17, 2008

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Agenda

Enterprise Risk ManagementWhy We Need Enterprise Risk

ManagementCase Studies

Wounded Warrior Out of Country Payments Accounts Payable

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A Complex Environment Fraught with Risk

6.9 million travel payments

$328 billion in military retirement

managed865 active DoD appropriations

54.5 million general ledger accounts with billions of

transactions

$446 billion in disbursements

154.6 million payroll payments

14 million commercial invoices

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What is Enterprise Risk Management?

Enterprise Risk Management (ERM): An organization-wide approach that proactively identifies inherent risks and prevents or manages them

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Why do we use Enterprise Risk Management?

Why do we use Enterprise Risk Management?

Why ERM

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DFAS’ Approach to ERM

Assess Plan Execute Sustain

DFAS ERMP Implementation Activities: ERM Governance Business Environment

Identification KRI Identification and

Monitoring ERM Reporting Compliance Management

Taxonomy, Risk Classification, and Policy

Establish DFAS Risk Appetite

ERM System/ Dashboard Development

Incident Capture Process

Communication, Training, and Awareness

Risk and Control Identification and Assessment

Control Testing Issue Management and

Remediation

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Current State Desired State, Implementation

Implementation Activities

Governance DevelopmentTrainingSub-Core Self AssessmentCore Area Risk AssessmentMap Key ProcessesPerform Risk & Control

Identification and AssessmentEstablish Risk ToleranceRisk Mitigation Develop Test PlansDevelop Internal Control

Questionnaires

Implementation Outcomes

Dashboard ReportingProactive, Risk-Aware

WorkforceCentralized repository of

policies and procedural guidance

Process Excellence

ERM Evolution

DFAS Enterprise

Risk Management

Program

Ad Hoc Managed Standardized Integrated Optimized

DFAS Risk Management Maturity

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Identifying Risk

Document the process Identify risks and establish

controls to mitigate those risks

Evaluate, test and -- if necessary -- revise

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Accountability is Key

Accounts Payable: Own the process Identify Risks: What all can go wrongPrioritize: Develop an integrated strategy for solutions

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Compliance

Audit oversight Internal reviewFederal Managers’ Financial Integrity Act Compliance Improper Payments Information ActFinancial Improvement and Audit ReadinessFederal Financial Management Improvement ActClinger-Cohen ActBalanced ScorecardDepartment of defense Information Assurance and

Certification Accreditation ProcessFederal Information Security Management Act

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Outcomes

• Streamlined accounting and personnel processes

• Better support for our customers

• Peace of mind for Warfighters and their families

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Case Study: Wounded Warrior

BackgroundBackground

ResultsResults

• Inaccurate pay to wounded soldiers resulted in soldiers owing money to the government

• Pay and personnel systems unable to handle situation

• Congress and media were outraged

• Number of erroneous payments significantly reduced

• Hospitalized Soldiers contacted personally

• Wounded In Action (WIA) database developed

• Available financial personnel at Walter Reed and Landsthul hospitals

• Overall processes and procedures improved

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Case Study: Out of Country Payments

BackgroundBackground

ResultsResults

• Billions of dollars spent on the Global War on Terror

• DoD unable to support financial operations in Iraq and Afghanistan using standard operating procedures

• Army needed to improve internal controls for soldiers to be supported properly

• Regulations for soldiers in contingency environment revised

• Partnered with Army to improve controls and ensure payments are properly supported

• Communication, training and interagency planning improved

• Oversight/follow-up procedures established

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Case Study: Accounts Payable

BackgroundBackground

ResultsResults

• Disparate accounts payable processes.

• Consolidated operations and standardized processes

• Improved efficiency and effectiveness, exceeding customer expectations

• In FY07 saved $53m by eliminating rework and increasing productivity

• 55 errors identified

• Dollar impact $7,166,567

• Employee coding training opportunities identified

• Opportunities to apply Business Activity Monitoring identified

Reduced improper payments

Identified Fraud

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Business Activity Monitoring

The Future of BAM with DFAS

Improper Payments are detected and corrective action injected automatically at the source.

Detect and Prevent

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Questions