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TOWARDS CLEAN AUDITSThe Department of Defense (DoD) has made considerable strides over the past several years in response to Congress’s 2010 mandate that it be “audit-ready” by 2017. To succeed, the department must demonstrate it has strengthened its internal controls and improved its financial practices, processes, and systems so there is reasonable confidence the information in its financial statements can withstand an audit by an independent auditor. For an organization spanning more than 2.8 million military and civilian personnel, $2.2 trillion in assets, and a proposed budget of $639 billion in the 2018 fiscal year, the task is far from easy.1,2 Few expect them to achieve a clean audit opinion the first time, but focused efforts to become “audit-ready” will bring them close. DOD leaders have been executing a detailed Financial Improvement and Audit Readiness (FIAR) strategy as a deliberate approach within the financial community to understand their status and learn lessons. The have been working on fine-tuning where possible and identifying corrective actions for elements of the department appropriate to their level.
However, it is what comes after the audit that will define their audit regimen moving forward. Post-audit support activity can be grouped into three life cycle areas: Response, Remediation, and Sustainment. Audit Response describes the surge to support the auditors during this initial part of the cycle when they are gathering evidence. Audit Remediation activities are longer-term actions to help organizations quickly analyze the Notifications of Findings and Recommendations (NFRs), develop and prioritize corrective action plans (CAPs), and then implement the CAPs to create enduring solutions. Audit Sustainment activities focus on
translating improvements from the NFRs and CAPs into long-term performance so audits become part of the organizations standard operating procedures.
While audit readiness and response activities have received the most focus over past few years, audit remediation, and sustainment activities are often much more difficult to realize as those activities can involve extensive changes to current business rules, processes and/or organizational alignments designed to improve quality and performance. These changes may include new requirements to integrate higher volumes of data, improve the quality and accuracy of data or, in some cases, move beyond financial data for insight.
Unfortunately, with their financial data spread out over hundreds of separate organizations, systems, databases, spreadsheets, and even paper records, leaders are quickly finding these adjustments are difficult to make. Systems lack the ability to talk to each other, databases are structured differently, and incorporating non-digitized materials into the audit process is particularly slow, cumbersome and expensive.
In response to these challenges, some DoD organizations have begun to introduce the use of robotic process automation (RPA) – a common practice in the private sector. RPA is the automation of repeatable, redundant, and rule-based human action using software bots. By automating the most mundane tasks supporting the gathering, entry and reconciliation of financial data, RPA promises to greatly improve the speed and accuracy of applicable tasks within the audit process. It also advertises reduced cost and risk. But, while RPA can potentially address these issues and improve important aspects of the audit lifecycle, some organizations are finding the implementation is more complex than
AUDIT ACCELER ATION WITH ROBOTIC PROCESS AUTOMATION
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anticipated and results are not what they expected. How can organizations take advantage of this advanced technology and successfully navigate potential implementation pitfalls in order to meet overall goals to improve quality and performance and achieve a clean opinion?
AUTOMATION ADVANTAGE The promise of automation is exciting. Even though less than 5% of all occupations can be automated entirely, almost every occupation has partial automation potential.3 And that potential – found most often in highly structured routine activities, like data collection and processing – are leading to more and cleaner data entry, a higher volume of business transactions, increased quality and speed of decision making, and an overall reduction of costs.
The primary function of a technology like RPA is to facilitate the movement of data and to help reconcile that data. This includes integrating data from multiple sources, comparing data from multiple
sources, transcribing data from paper invoices, data anomaly detection, and error rate reduction. More efficient management of financial data using RPA can give the organizations a clearer understanding of the financial resources at their disposal, and thus the ability to make better decisions about how to use those resources in carrying out their mission.
Expanded use of these new automation technologies can also accelerate our ability to scale new capabilities to an operational level. That is, as Defense Business Board recently suggested, automation could likely improve financial management effectiveness by analyzing and solving more complex problems and even generating second and third order solutions not presently available.4 For example, an RPA system might pinpoint a discrepancy, exception or apparent error based on process rules, and transmit it automatically to a system designed to analyze cases of potential fraud using natural language processing. That system would determine the likelihood that the discrepancy involved actual fraud, which a human could then investigate further.
“The promise of automation is
exciting. Even though less than 5% of all occupations can be automated
entirely, almost every occupation has partial automation potential.”
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While traditional enterprise resource planning (ERP) and office automation systems can automate business rules within a functional system, such as procurement, or finance, RPA automates the connections between systems that were either too costly or too difficult to connect. What’s more, RPA bots are not system specific – any application that can be used by a person can be used by a modern robot, whether mainframe, legacy, bespoke application, web service enabled or even a closed third-party application programming interface (API) hosted service. RPA does not require any changes or integration with the system. RPA bots act like a human and does what a human would do.
But in some ways, that’s exactly the problem.
Understanding the broader context in which RPA is expected to operate – including the humans it works with – is critical to its, and the organization’s success. The kinds of activities RPA can take on have long been carried out by people, diligently, but with the risk of misunderstandings, errors, waste, and even fraud. But this very advantage is also the source of considerable concern on the part of the employees who have long carried on such work. The fear, of course, is that their jobs will disappear, to be replaced by bots. The depth of this fear, and its potentially harmful effect on efforts to implement RPA, cannot be overstated. This is especially true at DoD where institutional resistance to change can rapidly become an almost insurmountable force.
Yet, by taking over many of the repetitive tasks involved in maintaining and reconciling financial data, RPA can free up employees to take on higher value activities, such as chasing down exceptions, resolving errors, and investigating instances of waste and potential fraud. In fact, the use of RPA technologies in the private sector has not been shown to lead to significant job loss. They have demonstrated it is indeed possible to retrain workers to perform higher-level cognitive tasks requiring soft
skills such as creativity, judgment, empathy and emotion, leading to higher job satisfaction. The trick is in developing an implementation strategy that clearly engages the financial management (and broader leadership) community to demonstrate understanding of the risks as well as clear benefit of the rewards.
STRATEGIES FOR ROBOTIC PROCESS AUTOMATION IMPLEMENTATIONCreating high-performance, low-cost delivery systems based on a human-digital workforce where automated bots relieve humans of low-value, repetitive, and low-creative activities and leaving humans free to do what humans do best requires several key components.
Targeted Assessment. RPA does not provide a one-size-fits-all solution for each organization. Financial managers should to start by identifying potential candidates for automation using a structured automation assessment to profile and assess which processes are likely candidates. As a part of audit remediation activities, leaders should be mindful of the development of new processes, inclusive of business rules that impact stakeholders beyond the traditional financial management community. Automating broken or outdated processes will not provide the expected benefit.
Informed Deployment. With an inclusive list of process candidates for automation, leaders should first develop a compelling business case and ensure all affected stakeholders are engaged and on board. The key to fixing things from an audit is doing so in such a way as to create lasting improvement in performance. The one-time, quick fix is usually not the best answer. Getting to sustained improvements in performance so audits become routine business, requires mission understanding. Mission understanding means applying knowledge and insights into what the organization is responsible to
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produce as an outcome, and how its people and culture, policies and processes, and systems and infrastructure all come together to achieve the leader’s intent. In any RPA deployment, leaders should develop plan informed by mission understanding to address all of the issues they are likely to face as the program rolls out, including security, governance, training and other issues.
Change Management. Process automation can bring up the specter of unwelcome new procedures, arduous retraining, and lost jobs. Financial managers who want to deploy RPA should develop a proof-of-concept or pilot in a test environment and learn how automation may operate in their environment – including whom and what is likely to be impacted. A successful change management program must be planned carefully, with input from those whose jobs and procedures will be affected. It is critical that employees understand the reasons for the change, the new activities involved, the benefits and costs, the potential for increasing personal, organizational and departmental mission success.
With an overarching strategy, including targeted assessment, informed deployment and deliberate change management, financial management leaders can confidently address data-oriented audit remediation CAPs and create a solid foundation for sustainment. By streamlining their fiscal and functional processes using automation such as RPA, financial management leaders can optimize their financial and functional systems, and increase the value of their workforce while reducing errors and increasing confidence in their financial data, ultimately freeing up resources to support their priorities.
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NOTES
1. About the Department of Defense, https://www.defense.gov/About/
2. DOD FY16-17 Performance Goals Overview, Financial Statement Audit Readiness, https://obamaadministration.archives.performance.gov/content/
financial-statement-audit-readiness.html#overview
3. Harnessing Automation for a Future that Works, McKinsey Global Institute, January 2017, https://www.mckinsey.com/global-themes/digital-disruption/
harnessing-automation-for-a-future-that-works
4. Implications of Technology on the Future Workforce, Defense Business Board, August 2, 2017, http://dbb.defense.gov/Portals/35/Documents/
Meetings/2017/August%202017/Implications%20of%20Technology%20on%20Future%20Workforce%20-%20Aug%202%202017%20
presentation%20-%20Public%20Release%20Approved.pdf
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