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Overhauled Navy Audit Ties Financial Health to Lethality Push

THE PENTAGON – The Navy completed its second full-scope audit amid an effort to reform its business practices to support the National Defense Strategy and great power competition.

In this second-ever full audit, the Navy had more than double the number of discrepancies as last year – more than a thousand notices of finding and recommendation (NFRs) compared to about 500 last year – but Thomas Harker, the assistant secretary of the Navy for financial management and comptroller, told reporters that this is because the Navy dove deeper into its processes to try to find all the problems and address them rapidly.

“That’s going to look like it’s terrible news because they had all these additional discrepancies. The reason for that is because they were able to dive a lot deeper, look at things they didn’t look at last year – continuing legal liabilities, environmental disposal liabilities, how we executed the budget, the accuracy of a lot of those transactions,” he told reporters Friday.

Harker also noted that, where the Navy had implemented new processes in light of the 2018 audit results, the Navy didn’t just get credit for the process it designed; auditors at Ernst and Young tested those new processes to give better feedback.

Though the Navy is the only service with such a spike in findings and recommendations compared to last year, Harker said “I view that as a success for us because we were able to do more with the audit this year than we did last year.”

“You get everything out there, you expose all of the problems, and it makes it a lot easier to fix things,” he added.
“It looks worse. Intuitively you’ll say, my god, a thousand findings, that’s bad. But for us it’s actually a good thing because it lets us focus on fixing things much more quickly.”

Among the issues Harker is most interested in fixing is legacy business systems, some of which are so old they are written in antiquated computer languages like COBOL and are particularly vulnerable to cyber breaches. Though Harker said it may sound silly to worry about Chinese or Russian hackers breaking into a payroll system, he said readiness and lethality of sailors on deployment absolutely would be affected if their families at home weren’t getting paid due to a cyber attack. He likened this to the Coast Guard’s challenges last year during a partial government shutdown in late 2018 and early 2019, when Coast Guardsmen were expected to continue with their missions despite paychecks not being issued.

“We need to make those investments because right now a lot of the antiquated business systems we have are impacting our readiness, our lethality. We’ve got systems on our logistics side and on our financial management side that were written in COBOL. That’s incredibly vulnerable for great power cyber impacts,” Harker said.

The Navy ties its business practices and its readiness and lethality together under a Department of the Navy (DoN) Business Operations Plan (BOP) created in Fiscal Year 2018 to align the department with the National Defense Strategy.

“The focus of these priorities is to restore program balance, sustain global demand for naval forces, continue improving readiness, recapitalize and modernize naval forces, address the competitive operational environment, improve cyber resiliency, and promote responsible military spending. These efforts will enhance capabilities, improve the lives of sailors and Marines, and increase lethality, resulting in the successful sustainment of our world-class naval force and greater security for the U.S.,” according to the audit report.
“The audit is proving to be a valuable independent assessment that the DoN can leverage to support readiness and lethality. DoN is using this information to streamline operations and reimagine how support functions can be modernized.”

The report highlights FY 2019 achievements under the DON Business Operations Plan, including growing mission capable rates for F/A-18 E/F Super Hornet and EA-18G Growler aircraft from 50 percent to 80 percent; getting on a track for 75 percent of guided-missile destroyers availabilities to complete on time in FY 2020 quarters 1 and 2, compared to fleet-wide averages below 50 percent recent years; reaching initial operational capability on the Joint Light Tactical Vehicle 10 months early; reaching an agreement for a two-carrier buy to save about $2.4 billion across the next two Ford-class aircraft carriers; and conducting a full baseline review of all Navy real property.

The plan includes 198 initiatives, 58 of which were carried over into FY 2020.

“For FY 2020, new business rules have been established which require initiatives to provide impact in one of three ways: cost savings, investments, or avoidance; manpower or time savings and efficiencies; or as enablers that affect readiness and lethality,” the report reads.

As for the Marine Corps, Harker said, “because it’s their third year and because they’ve done a lot with audit in the past, you didn’t see a lot of changes in the number of their NFRs or material weaknesses, but what you saw was a significant increase in the accuracy of what the auditors were testing. In prior years they were testing things – inventory accuracy, support for our obligations, support for our transactions – and it was about 80 to 85-percent accurate. This year they got up to 95, 96, 97, in some cases 99-percent accurate. So the Marine Corps has been able to do a lot of work improving the accuracy of both the data that supports their inventory and operating controls and supplies as well as the accuracy of those transactions.”