In early 2018, members of the Security Assistance Command and organizations within the security assistance enterprise received an audit notification letter that announced the first-ever financial audit of the foreign military sales business practices and processes, scheduled for fiscal 2022.
The letter, signed by the DOD’s assistant inspector general, was followed up by a supporting memorandum from Lt. Gen. Charles Hooper, director of the Defense Security Cooperation Agency, highlighting the seriousness of the audit.
Affecting all services and military departments that support foreign military sales, this would be the most wide-sweeping official external full-scope financial statement audit ever performed on the security assistance account trust fund that falls under U.S. Code Title 22.
“U.S.C. Title 22 is a foreign countries’ money, so it’s not our money, as in U.S. taxpayer supported and congressionally approved Title 10 funds,” Donna Franklin, chief of internal review and audit compliance at USASAC, said. “However, we’ve been entrusted as good stewards to ensure that we are managing it with the same rules, laws and regulations as our own money.”
This notification put into motion a full-fledged, multiagency and multi-organizational effort to map out business processes, internal controls and authorities necessary to audit the security assistance trust fund of nearly $5.5 billion.
That trust fund, accumulated from nearly 6,000 FMS cases with a total program value of almost $200 billion and managed by the Office of Management and Budget, is the result of a 3.2% administrative surcharge placed on the sale of every training course or piece of military equipment to our foreign allies and partners.
Not widely known, these surcharges also pay for the majority of workforce salaries and operational expenses at USASAC, the multiple agencies within the security assistance enterprise, along with the Deputy Assistant Secretary of the Army (Defense Exports and Cooperation) and DSCA.
Franklin, who has worked as a federal auditor for over 16 years, with almost four at USASAC as the command auditor, described how the FMS processes have been audited over the years by external agencies like the DOD’s Inspector General, the Government Accountability Office and the Special Inspector General for Afghanistan Reconstruction.
“These engagements were conducted on a smaller scale with requests for documentation, questionnaire responses, and staff element interviews for their limited scope performance audits,” Franklin explained. “On the other hand, in preparation for the upcoming FMS/Title 22 audit, all of the requests for meetings and documents to identify problems or areas that need clarity will help us prepare for the scrutiny of an external (performed by an independent public accounting and auditing firm) audit of our financial transactions.”
The overarching task for the entire USASAC and ASAE team is ensuring every financial transaction has the proper authorizations, supporting documentation, appropriate accountability measures and compliance to regulation or guidance.
“Our end goal is to receive an unmodified opinion – which in layman terms means a clean audit, with no significant deficiencies or fraud,” Franklin said.
USASAC, as the implementing agency that manages the day-to-day execution of the Army’s FMS cases, is considered the hub of the security assistance enterprise. The command plays a key role in preparing for these limited-scope preliminary audits and overall success of the larger full-scope financial statement audit.
Franklin knew that staff elements across the security assistance enterprise weren’t used to ongoing audits like the Title 10 community.
“Our biggest challenge is pulling people together, from 26 different organizations in the ASAE, to include DASA (DE&C) and DFAS, and focus the effort to change regarding the need for the audit,” she said.
“However, once we explained the ‘why’ – the importance and significance of the request – an understanding sets it, and they embraced the mindset to accomplish auditability.”
“It’s about credibility to our foreign partners,” J. David King, a policy and procurement adviser with DASA (DE&C), said. “They trust us for the integrity of the process so after this audit finishes, we can show them that everything is being done correctly, and it’s held to the same standards as our own militaries use.”
King, along with Ulysses Rhodes, the director of policy, resources and international training at DASA (DE&C), have held a number of workshops at locations around the enterprise. The intent of the workshops is for all the different operating agencies to work through process maps and schematics for the six main auditable items: appropriations received and FMS case acceptance; civilian pay; contractor and vendor pay; reimbursable work orders; plan to stock; and transportation of things.
Within those six categories, called accessible units, are hundreds of decision points, financial transactions and approval documents that form the legal basis of the case and FMS sale.
The contractor and vendor pay unit alone required 35 process maps to capture all the decision points, key decisions and documents.
“The reason we go through all this effort is because we owe it to our foreign national customers to show them we are accountable for the $5.5 billion that we have in the security assistance account trust fund,” Rhodes said. “When we are done this will show our international customers that they can trust us with their money, establish that transparency they desire, and give them visibility on their programs.”
Expending effort and expense upfront is important to building a sustainable program that incorporates auditable controls and processes into the day-to-day business activities.
“It has been a tremendous amount of work because we’re developing an entire program to fulfill requirements for the full financial audit in FY ‘22, but it’s not just ‘that’s it’ and you go home,” King said. “We have to build an ongoing sustainment piece and hire more financial experts.”
Rhodes agreed with King’s assessment that the audit will impact future audit manpower requirements. “Once this audit is complete the requirement for Title 22 audit is not going away,” Rhodes said. “It's going to be institutionalized into our FMS culture moving forward.”
As the DASA (DE&C) leads for audit readiness, Rhodes and King understand that all the preliminary work and small successes, across the security assistance enterprise, are the result of a tremendous amount of effort.
“At DASA (DE&C), we are extremely grateful for all the extra effort that the Army organizations and our partners at the Defense Finance and Accounting Service are doing to ensure a successful and clean FMS audit,” King said.