REDACTED 1 Limited Sources Justification_FIAR 5JUN2025 APPROVAL_Redacted.pdf

Limited Sources Justification and Approval (J&A)

CONTROLLED UNCLASSIFIED INFORMATION

April 2024 CONTROLLED UNCLASSIFIED INFORMATION Page 3 of 7April 2024 CONTROLLED UNCLASSIFIED INFORMATION Page 3 of 7 audit roadmap targets for the MWs and SDs:

FY25

1. (GF) Real Property

2. (GF) Other General Equipment

3. (GF) Accounts Payable, Expenses, and Accounting for Contract Financing Payments

4. (WCF) Accounts Payable, Gross Costs, and Accounting for Contract Financing Payments

5. (WCF) Inventory Held by the DAF SD 1. (GF) Reimbursable Program SD 2. (DSCA) Treaties and Other International Agreements

FY26 (Anticipated GF Opinion)

6. (GF) Entity Level Controls

7. (GF) Integration and Reconciliation of Financial Systems

8. (GF) Operating Materials and Supplies

9. (GF) Property and Materials Held by Others

10. (GF) Financial Information Systems

11. (WCF) Financial Information Systems

12. (WCF) Inventory Held by Others

13. (DSCA) Entity Level Controls

14. (DSCA) Unsupported Accounting Adjustments SD 3. (GF) Environmental and Disposal Liabilities SD 4. (DSCA) Contingent Liabilities SD 5. (DSCA) Financial Reporting

FY27

15. (WCF) Earned Revenue and Accounts Receivable

16. (DSCA) Accounts Payable

17. (DSCA) General Property, Plant & Equipment (PP&E)

18. (DSCA) Intragovernmental Transactions and Eliminations

19. (DSCA) Oversight of Service Providers

20. (DSCA) Universe of Transactions SD 6. (DSCA) Reporting Entity

FY28 (Anticipated WCF and DSCA Opinion) 21 (WCF) Entity Level Controls

22. (WCF) Integration and Reconciliation of Financial Systems

23. (DSCA) Accounting for Case Activity in General Ledger

24. Beginning Balances

25. Budgetary Resources

26. Configuration Management

27. Earned Revenue

28. Fund Balance with Treasury

29. Gross Costs

30. Inventory and Related Property SD 7. (WCF) General Property, Plant, and Equipment, Net SD 8. (DSCA) Environmental and Disposal Liabilities SD 9. (DSCA) Security Management

Audit and audit system remediation services are crucial to support the dynamic nature of the audit, including potential workload increases from the anticipated separation of the US Space Force (USSF) audit in FY26. Any break in service would impact the DAF's ability to separate USSF in FY26. Stringent requirements for a successful

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USSF standalone audit include compliance with federal accounting standards and regulations; robust internal controls to enable accuracy and integrity of financial data; and regular reconciliation of accounts to enable consistency and accuracy of financial data. In addition, if there is a break in service, the DAF will be unable to complete the required reporting for end of FY 25. This will result in the auditor reissuing material weaknesses for both the General Fund and Working Capital Fund Financial Statements for Fund Balance with Treasury and Military Equipment, in effect wiping out 10 years of progress for the DAF in auditability. This will put DAF last amongst the Services with moving from first at 72% auditability to 20% auditability. A break in service will also result in all efforts being pushed to the right putting DAF at risk of meeting the Congressional mandate for FY28 unmodified opinion.

The DAF requires services that provide agility in responding to evolving audit requirements, such as those related to Entity Level Controls, Financial Information Systems, and the Integration and Reconciliation of Financial Systems. This includes system remediation services for critical systems like Defense Finance and Accounting Service Transaction Interface Module (DTIM), Defense Enterprise Accounting and Management System (DEAMS), General Accounting and Finance System- Reengineered (GAFS-R), and General Accounting and Finance System- Base Level (GAFS-BQ); as well as new system implementations like Air Force Integrated Personnel and Pay System (AFIPPS) and Maintenance Repair and Overhaul System (MRO); enabling data accuracy, completeness, and compliance with audit standards. Knowledge of functional system logic, relationships and reconciliations to the financial systems is key to achieving DAF audit goals. These systems include but are not limited to acquisition, payroll, and logistics. This includes providing guidance to functional counterparts on the required system information for successful transition of systems as the DAF moves to streamline its IT portfolio. Audit and audit system remediation services will also support the identification of key information for system change requests and the Service Development and Delivery Process (SDDP) for FIAR business processes, enabling effective IT controls and compliance.

Furthermore, audit and audit system remediation services will support the DAF with specialized experience in analyzing federal accounting and auditing standards to identify key controls and gaps in compliance as well as guidance on how compliance can be achieved. This activity enables corrective actions that address root causes and that sustainment plans are implemented effectively, including thorough documentation of processes and controls as remediated, stakeholder coordination, and communication plans. Audit and audit system remediation services contractors will track and report on corrective actions and maintain a complete universe of transactions and reconciliations to meet Office of Management and Budget (OMB) Circular No. A-123 and Government Accountability Office (GAO) requirements. Additionally, contractors will assist in developing and evaluating business process requirements, policies, and system controls to enable compliance with federal mandates that include OMB Circular No. A-123 and the Federal Managers' Financial Integrity Act of 1982. As part of this evaluation, they will develop accounting position papers and compensating controls using a variety of methods such as, but not limited to, automated reconciliations and usage of artificial intelligence and machine learning (AI/ML) technologies for analysis for reporting balances on the DAF Financial Statements.

IV. Identification of the justification/rationale for limiting sources and demonstration of the contractor's unique qualifications to provide the required supply/service.

FAR 8.405-6(a)(1)(A) an urgent and compelling need exists, and following the procedures would result in unacceptable delays. The current audit roadmap shows that the DAF, AFMC, and DSCA are targeting five MWs and two SDs for closure in FY25 and nine MWs and three SDs for closure in FY26 with vast majority of the workload (up to 85% of critical activities according to the Integrated Master Schedule (IMS)) occurring between now and November 2025. Efforts surrounding the areas on the audit roadmap for FY25 have been ongoing for several years. Were DAF to compete, evaluate, award, transition, and train an alternate provider, progress would halt and roadmap dates would be negated, resulting in severe mission degradation and high risk of mission

April 2024 CONTROLLED UNCLASSIFIED INFORMATION Page 5 of 7 failure. A break in service would cause the DAF to suspend its FY25 audit and could also result in the reissuance of material weaknesses for Fund Balance with Treasury (FBWT) and Military Equipment (ME), which were downgraded over the last two years, putting the DAF on a reverse trajectory resulting in the date for favorable audit opinion to slip to the right by one or two years. In addition, the DAF is accelerating efforts to break out USSF from USAF into separate audits by the end of 2025 due to pressure from The Office of the Undersecretary of Defense and Congress on USSF passing an audit. There is an immediate need from 23 July 2025 for continuing audit services through the end of November 2025 after the DAF FY25 Agency Financial Report is published, signifying the end of the FY25 audit cycle. Following full and open competition procedures prior to November 2025 would result in an unacceptable break in service. Deloitte currently has all of its resources optimally allocated to serve the needs of the Government while minimizing waste and inefficiency.

Over the next two fiscal years, the DAF is targeting the remediation of more than 70% of its remaining material weaknesses. To address those objectives in a time-constrained environment, DAF must leverage existing programs support success to maintain future progress. Implementation of new technical solutions, data analytics, and controls can take years from start to auditor concurrence, as demonstrated by the DAF's FBwT and ME experience. Deloitte's work in progress includes deploying related controls and finishing work products and tools to address Real Property, General Equipment, Operating Materials and Supplies (OM&S) to meet the FY26 and FY28 audit roadmap targets. These tools include: an overall construction-in-progress (CIP) process, data quality controls over logistics systems, and roll forward reconciliations over balance sheet asset accounts specifically integrating logistics system data with the accounting data. In addition to this, the DAF is currently in process of moving asset data for military equipment and OM&S from one system to another (Reliability, Availability, Maintainability of PODs (RAMPOD) to Reliability & Maintainability Information System (REMIS), Integrated Missile Database (IMDB) to Theater Integrated Combat Munitions System (TICMS), and movement of Intercontinental Ballistic Missiles (ICBM) from PP&E to OM&S. Deloitte has supported the DAF in the analysis, reconciliation, and movement of financial data and development of new controls to facilitate and maintain audibility in these areas.

Given the length of time working this program with Deloitte and the recurring successes with achieving audit milestone objectives, we forecast that switching vendors in the middle of an audit cycle would create a gap that results in unacceptable mission critical risks or stoppage. At this point, a four-month bridge is the only option to ensure continuity of services through the end of November 2025 without an unacceptable break in service.

Deloitte is qualified to provide the required FIAR services as they supported the DAF in downgrading/fully remediating eight material weaknesses, including the years-long, complex processes to remediate the GF's FBwT and Military Equipment (ME) material weaknesses. GF ME and FBwT remediation efforts began in FY19 and FY20 respectively; Deloitte developed controls and data analytic solutions in the first six months, which was followed by years of auditor testing and concurrence, with remediation in FY23 for FBwT and FY24 for ME. The DAF was the first military department to achieve these milestones.

· -Over the last 6.5 years, the DAF has gone from `worst to first' on the Department of Defense's audit rankings report for Congress, maintaining DAF in the top position in each of the last four annual reports.

· -A significant number (76) of automations have been developed and deployed in support of FIAR program initiatives. These automations have already had a significant impact on DAF operations, saving the DAF hundreds of thousands of hours of manual processing time, improving operational efficiency and effectiveness, and increasing accuracy across a number of systems and processes. Deloitte's familiarity with these automations, and their ability to continue rapidly applying similar solutions to other critical needs areas and their knowledge of the DAF overall system environment, implemented reconciliations control environment, is an advantage lost if continuity of support is disrupted.

· - Deloitte designed, developed and deployed an Artificial Intelligence (AI)/machine learning model to rapidly accelerate progress towards a single source of data truth within the Universe of Transactions landscape. The AI/ machine-learning driven advancements will be a game-changer with respect to financial decision making, but only if DAF can continue with a vendor who has established technical knowledge and exposure across the DAF's IT environment.

April 2024 CONTROLLED UNCLASSIFIED INFORMATION Page 6 of 7

The DAF FIAR program is at a critical stage with less than one year from the FY26 GF audit milestone. There is an immediate need from 23 July 2025 for continuing audit services in order to remediate key milestones on the schedule through the end of November 2025 and stay on track for the FY26 audit roadmap.

· - As the same vendor, Deloitte was able to leverage the same technically specialized resources, data analytics, and control-based solutions to successfully replicate remediation for DAF WCF and achieve the full FBwT WCF remediation in FY24. The United States Army leveraged its DAF counterparts, holding multiple working sessions with Deloitte support, to downgrade their GF FBwT material weakness in FY24, setting Deloitte apart as a vendor with technical, highly specialized expertise.

· - Similarly, Deloitte brings a unique mix of accounting and technical system expertise that supported the full remediation of the Military Equipment (ME) material weakness in FY24, the most significant balance in General Property, Plant and Equipment (GPP&E). Deloitte directly supported the ME material weakness remediation through implementation of automated Construction in Progress asset valuation tools, APSR reconciliations and roll-forwards, and internal controls governing data quality including dashboards and transaction review controls.

DAF is leveraging Deloitte's same methodologies, solutions, and specialized resources to downgrade the Real Property material weakness targeted for FY25, representing the second most significant balance in DAF GPP&E.

· - DAF is also leveraging Deloitte's business process reengineering, and data analytic and roll-forward reconciliation solutions as a key component of remediating the Working Capital Fund Inventory Held by Air Force (on roadmap for FY25) and the Inventory Held by Others (on roadmap for FY26) material weaknesses, which represents 90% of the WCF Balance Sheet Assets. Deloitte is uniquely positioned with a blend of specialized WCF finance and accounting expertise, along with functional understanding across 12+ DAF WCF Inventory business processes, complex legacy and target system environments, and integration of multiple stakeholders (e.g., AFMC/ FM, AFMC/A4, AFSC, and the 448th Supply Chain Management Wing).

· - After remediating a material weakness, additional sustainment work is required to maintain those successes.

Many of these sustainment controls are completed annually in October/November, making this 4-month bridge necessary to avoid a break in service in the middle of the FY25 audit cycle and prior to when the annual controls would be executed.

V. Determination by the ordering activity Contracting Officer that the order represents the best value consistent with

FAR 8.404(d).

The resulting proposal will be evaluated by the SAF/FMF's government technical team to ensure the appropriate skill mix and labor hours are included in the DAF's negotiation position. The Contracting Officer will conduct a price reasonableness determination. Analysis will be based on historical costs incurred, the Independent Government Cost Estimates, and the technical evaluation. As this requirement meets the commercial services definition IAW FAR 2.101, certified cost and pricing data are not applicable.

VI. Description of the market research conducted and the results, or explain why market research was not conducted.

The DAF completed market research through various methods for continued audit and audit system remediation services support of the FIAR program. To date, four (4) Requests for Information (RFI) were posted to sam.gov to determine the pool of potential candidates to perform the work. Additionally, the DAF hosted an Industry Day to better tailor the requirements and assist industry in understanding the DAF's specific needs. The DAF received RFI responses from 28 vendors, both large and small businesses. Based on market research, there were several capable vendors on the former GSA OASIS Pool 2 contract vehicle. The GSA OASIS Pool 2 Unrestricted (UR) ordering period expired on 1 March 2025.

As a Fair Opportunity Proposal Request was to be developed for GSA OASIS+. The DAF learned, in Dec 2024, NAICS 541219 and 541211 the scope of FIAR Audit services was not included in the recently awarded follow-on

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GSA OASIS+ contracts.

An additional RFI was then issued on sam.gov in early Jan 2025, requesting Industry make known any contract vehicles available that meets the scope of FIAR Audit services under NAICS 541219/541211. The results varied and there were several vendors that indicated FIAR services are available under the GSA MAS Schedule. However, soliciting and competitively awarding a follow-on effort under the GSA MAS Schedule would result in an unacceptable lapse in service.

VII. Other facts supporting the justification.

None

VIII. Actions the agency may take to remove or overcome any barriers that led to the restricted consideration before any subsequent acquisition for the supplies or services.

The government will aggressively work to create acquisition strategies for continuation of work to allow for competition and award prior to the end of this PoP. The government plans to populate a bidder's library with deliverables from Deloitte, providing access to essential information for potential contractors. By sharing information openly, the government aims to remove barriers for small and large vendors. By providing comprehensive information and fostering transparency, the government will enable potential contractors to: (1) gain a clear understanding of project requirements and ongoing work; (2) assess their capabilities and resources for contract requirements; and (3) prepare competitive proposals based on accurate and up-to-date information.

IX. Certification by the Contracting Officer.

As evidenced by my signature above, I have determined this document to be both accurate and complete to the best of my knowledge and belief.

X. Certification by the technical/requirements personnel.

As evidenced by my (our) signature(s) above, I (we) certify that any supporting data contained herein, which is my (our) responsibility, is both accurate and complete.