Are You on FIAR Yet?

Posted by Kimberly Meagher on September 26, 2019

Are You on FIAR Yet

By Kimberly Meagher, Manager Solutions Engineering, Deltek

The FIAR, or the Financial Improvement Audit Readiness initiative, impacts all suppliers of the Department of Defense (DoD). Initiated in 2005, the FIAR is a result of the failure of the DoD to pass a financial audit under Generally Accepted Accounting Principles (GAAP).

The FIAR initiative has three elements:

  1. Provide timely, reliable, accurate, and relevant financial information
  2. Sustain improvements through an effective internal control program
  3. Achieve unqualified audit opinions on DoD annual financial statements.

And, why do you care about the DoD’s financial statements? Because, by default, these criteria flow down to the vendors providing goods (and services) to the DoD. In order to adequately support the DoD requirements, the vendor must have a system of record in place capable of maintaining appropriate controls and processes and be able to produce the necessary supporting documentation to validate the cost charged to the DoD.

The objective is to provide sound budgetary information and to ensure that all mission-critical assets are properly accounted for. Proper controls and processes, financial information technology and supporting documentation, are the means used.

Visibility and the System of Record

Accountability for mission critical assets requires improved visibility, operational efficiencies, improved fiscal stewardship and improved budget processes and control. The suppliers’ ability to support the FIAR requirements in an effective, efficient and accurate manner will be predicated on their system of record maintaining:

  • Individual item identifiers
  • Location
  • Category asset type
  • Operational status
  • Item description
  • Controlling or financial reporting organization.

They need to “ensure that all the information is accurately recorded in official systems of record, referred to as Accountable Property Systems of Record (APSRs).”

FIAR was staged in four waves, and we are now in the final wave, which is when the DoD will undergo a full audit of its financial operations.

Audit Readiness

In August 2017, the Under Secretary of Defense issued explicit guidance for audit readiness. The audit readiness guidance focuses on five elements: policies, processes and controls, systems and data, audit evidence, and human capital.  The supplier will be engaged in the audit evidence element.

Within wave one, the supplier began engagement as the invoices and supporting documents they submitted to the DoD were scrutinized. The FIAR wave one audit focus included:

  • Activities performed to control and record transactions
  • Receipt of budget
  • Distribution of budget
  • Provision of available support documentation
  • Design and implementation of effective controls.

Within waves one and two business cycles were reviewed and updated:

  • Status of all entity resources at period end
  • Reconciliation of changes in obligated balances from beginning to end of the period
  • Cash collections and disbursements for reporting periods.

Suppliers to the DoD were engaged, by default, in the procure to pay cycle, order to cash and budget to report cycles due to the role.

Service Provider Responsibilities

The roles and responsibilities defined in the FIAR methodology are presented as a pyramid, with reporting entities and service providers as the base. This means the quality of work of all other areas of responsibility is dependent on the service provider – the supplier!

In wave three a comprehensive audit of mission critical assets was conducted. Twenty-six percent of assets were verified. The enhanced traceability requirements of individual item identifier, location, category asset type, operational status and item description criteria can be directly attributed to this audit.

Going forward all mission critical assets must carry these attributes in the custodial book of record and must transfer those attributes with the asset at the time it enters DoD custody. Maintaining a system of record to support recording and tracking these attributes will be critical to the suppliers’ success and eligibility to do business with the DoD.

More FIAR Resources

To learn more about FIAR and how Costpoint and Deltek Partner A2B Tracking can help in supporting your FIAR requirements check out this DCAA and DCMA Audit Readiness on-demand webinar.