Air Force:

Enhanced Enterprise Risk Management and Internal Control Assessments Could Improve Accountability over Mission-Critical Assets

GAO-20-332: Published: Jun 18, 2020. Publicly Released: Jun 18, 2020.

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Kristen Kociolek
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The Air Force identified more than half of its $398 billion in assets (i.e., aircraft, weapons, vehicles, buildings) as mission-critical in fiscal year 2019. But, for decades, the service has not been accurately tracking and reporting financial information about its mission-critical assets. Without reliable information on this, the Air Force can’t support informed decisions about the condition, cost, or reliability of its assets, or about the need to request more resources.

Our 12 recommendations could help the Air Force strengthen its policies and procedures for overseeing and reporting on its mission-critical assets.

Aerial view of the Pentagon

Aerial view of the Pentagon

Additional Materials:

Contact:

Kristen Kociolek
(202) 512-2989
kociolekk@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

The Air Force's efforts to implement Enterprise Risk Management (ERM) are in the early stages, and accordingly, it has not fully incorporated ERM into its management practices as outlined in Office of Management and Budget (OMB) Circular No. A-123. As a result, the Air Force is not fully managing its challenges and opportunities from an enterprise-wide view. Until it fully incorporates ERM—planned for some time after 2023—the Air Force will continue to leverage its current governance and reporting structures as well as its existing internal control reviews.

The Air Force has not designed a comprehensive process for assessing internal control, including processes related to mission-critical assets. GAO found that existing policies and procedures that Air Force staff follow to perform internal control assessments do not accurately capture the requirements of OMB Circular No. A-123. For example, the Air Force does not require (1) an assessment of each internal control element; (2) test plans that specify the nature, scope, and timing of procedures to conduct; and (3) validation that the results of internal control tests are sufficiently clear and complete to explain how units tested control procedures, what results they achieved, and how they derived conclusions from those results. Also, Air Force guidance and training was not adequate for conducting internal control assessments.

In addition, GAO found that the Air Force did not design its assessment of internal control to evaluate all key areas that are critical to meeting its mission objectives as part of its annual Statement of Assurance process.

Furthermore, GAO found that procedures the Air Force used to review mission-critical assets did not (1) evaluate whether the control design would serve to achieve objectives or address risks; (2) test operating effectiveness after first determining if controls were adequately designed; (3) use process cycle memorandums that accurately reflected the current business process; and (4) evaluate controls it put in place to achieve operational, internal reporting, and compliance objectives. GAO also found that the results of reviews of mission-critical assets are not formally considered in the Air Force's assessment of internal control.

Without performing internal control reviews in accordance with requirements, the Air Force increases the risk that its assessment of internal control and related Statement of Assurance may not appropriately represent the effectiveness of internal control, particularly over processes related to its mission-critical assets.

Why GAO Did This Study

OMB Circular No. A-123 requires agencies to provide an annual assurance statement that represents the agency head's informed judgment as to the overall adequacy and effectiveness of internal controls related to operations, reporting, and compliance objectives. Although the Air Force is required annually to assess and report on its control effectiveness and to correct known deficiencies, it has been unable to demonstrate basic internal control, as identified in previous audits, that would allow it to report, with reasonable assurance, the reliability of internal controls, including those designed to account for mission-critical assets.

This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines the extent to which the Air Force has incorporated ERM into its management practices and designed a process for assessing internal control, including processes related to mission-critical assets.

GAO reviewed Air Force policies and procedures and interviewed Air Force officials on their process for fulfilling ERM and internal control assessments.

What GAO Recommends

GAO is making 12 recommendations to the Air Force, which include improving its risk management practices and internal control assessments. The Air Force agreed with all 12 recommendations and cited actions to address them.

For more information, contact Kristen Kociolek at (202) 512-2989 or kociolekk@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop and implement procedures for an ERM governance structure that includes oversight responsibilities for identifying, assessing, responding to, and reporting on the risks associated with agency material weaknesses from all relevant sources. These procedures should clearly demonstrate that risks associated with material weaknesses are considered by Air Force governance, as a whole, and are mitigated appropriately to achieve goals and objectives. (Recommendation 1)

    Agency Affected: Department of Defense: Department of the Air Force

  2. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop policies or procedures for assessing internal control to require (1) clearly delineating who within the Air Force is responsible for evaluating the internal control components and principles, how often they are to perform the evaluation, the level (e.g., entity or transactional) of the evaluation, what objectives are covered in the assessment, to whom to communicate the results if they are relevant to others performing assessments of internal control, and what guidance to follow; (2) documenting management's determination of whether each component and principle is designed, implemented, and operating effectively; and (3) documenting management's determination of whether components are operating together in an integrated manner. (Recommendation 2)

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop policies or procedures for assessing internal control to require the use of test plans that (1) tie back to specific objectives to be achieved as included in the Business Operations Plan; (2) specify the nature, scope, and timing of procedures to conduct under the OMB Circular No. A-123 assessment process; and (3) reflect a consideration of prior year self-identified control deficiencies and results of internal and external audits. (Recommendation 3)

    Agency Affected: Department of Defense: Department of the Air Force

  4. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop policies or procedures for assessing internal control to require SAF/FM to validate (1) the number of organizational units reporting for its overall internal control assessment; (2) how control procedures were tested, what results were achieved, and how conclusions were derived from those results; and (3) whether the results used to compile the current year report are based on current fiscal year's assessments. (Recommendation 4)

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop policies or procedures for assessing internal control to require SAF/FM to assess how waivers affect the current year assessment of internal control, the determination of systemic weaknesses, and the compilation of the Air Force's overall Statement of Assurance. (Recommendation 5)

    Agency Affected: Department of Defense: Department of the Air Force

  6. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should require that developers of the policy and related guidance associated with designing the procedures for conducting OMB Circular No. A-123 assessments receive recurring training and are appropriately skilled in conducting internal control assessments and are familiar with Standards for Internal Control in the Federal Government. (Recommendation 6)

    Agency Affected: Department of Defense: Department of the Air Force

  7. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should analyze all definitions included in Air Force ERM and internal control assessment policy and related guidance to ensure that all definitions and concepts are defined correctly. (Recommendation 7)

    Agency Affected: Department of Defense: Department of the Air Force

  8. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should require SAF/FM to design recurring training for those who will assess internal control that (1) includes enhancing their skills in evaluating the internal control system and documenting results; (2) reflects all OMB Circular No. A-123 requirements, such as those related to identifying objectives, evaluating deficiencies, and determining material weaknesses; and (3) is provided to all who are responsible for performing internal control assessments. (Recommendation 8)

    Agency Affected: Department of Defense: Department of the Air Force

  9. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop policy or procedures consistent with OMB Circular No. A-123 to assess the system of internal control using a risk-based approach. (Recommendation 9)

    Agency Affected: Department of Defense: Department of the Air Force

  10. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop procedures to assess internal control over processes related to mission-critical assets, including (1) tests of design that evaluate whether controls are capable of achieving objectives, (2) tests of effectiveness only after a favorable assessment of the design of the control, and (3) a baseline that has accurate descriptions of business processes and identifies key internal controls as designed by management to respond to risks. (Recommendation 10)

    Agency Affected: Department of Defense: Department of the Air Force

  11. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should establish a process and reporting lines of all the sources of information, including reviews performed of internal control processes related to mission-critical assets, that will be considered in the Secretary's Statement of Assurance. (Recommendation 11)

    Agency Affected: Department of Defense: Department of the Air Force

  12. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should develop procedures to require coordination between business process leads and the Air Force's unit managers to ensure that mission-critical asset–related internal control deficiencies are considered in the unit managers' assessments of internal control and related supporting statements of assurance. These procedures should include how, when, and with what frequency the results from the business process internal control reviews should be provided to relevant organizational units for consideration in their respective assurance statements. (Recommendation 12)

    Agency Affected: Department of Defense: Department of the Air Force

 

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