Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium

1. Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training Symposium Reimbursable Work Orders (RWO): Path to Audit Readiness June 5th – 6th, 2012

2. Audit Readiness • Context • Navy Medicine must assert audit readiness of its RWO-Grantor and RWO-Performer (Non-Uniform Business Office) processes by 3 Dec 12 and 1 Apr 13 (respectively). • Purpose • This will serve as an informational session regarding the Key Control Objectives (KCOs), control gaps and required corrective actions, and Key Supporting Documents (KSDs) identified for RWO-Grantor and RWO-Performer. • Outcome • An understanding of the status of RWO-Grantor and RWO-Performer, including major deficiencies and what needs to be done at the field level to facilitate a successful financial statement audit. FOR OFFICIAL USE ONLY

3. RWOScope/Definition FOR OFFICIAL USE ONLY

4. Audit Readiness Timeline Control Testing Time Period Assessable Unit Assertion Interim Progress Milestones (90 Days, 50 %, 75 %) FOR OFFICIAL USE ONLY

5. Audit Readiness Process FOR OFFICIAL USE ONLY

6. Deficiency Types • Material Weakness – A deficiency, or combination of deficiencies, ininternal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected timely. • Significant Deficiency – A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. • Control Deficiency – A deficiency that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements in a timely manner. FOR OFFICIAL USE ONLY

7. Considerations For Deficiency Type • Quantitative Materiality – Dollar impact or potential impact to the financial statements • Qualitative Materiality – Non-quantitative factors such as complexity of transactions, legal or regulatory concern or system deficiencies • Pervasiveness – Number of activities or transactions affected by the deficiency • Audit Dealbreaker – Issues that prevent an audit from occurring • Existing Guidance – Determining whether current policy or Standard Operating Procedure (SOP) is in place that meet financial reporting requirement FOR OFFICIAL USE ONLY

8. Reimbursable Work Order - Grantor FOR OFFICIAL USE ONLY

9. SOPs: Your Map to Audit Readiness • Theinternal controls required for RWO-Grantor are in the Support Agreements: Receiver-Side SOP Follow the SOPs ALL THE TIME and TO THE LETTER! SOP Questions/Feedback: BUMED-SOP@med.navy.mil FOR OFFICIAL USE ONLY

10. KCO1: Support Agreement • Control Objective • Funding documents contain sufficient detail on goods/servicesrequested and have a valid, compliant and legal Support Agreement(DD-1144) on file • Impact on Audit Readiness • Lack of DD-1144 would require more detail on funding documents • Insufficient documentation to support goods/services requested may indicate instances of fraud, waste, and abuse • Command Action Required • Implement Support Agreements as required in accordance with Support Agreements: Receiver-side Standard Operating Procedure (SOP) Section 1.7 and BUMEDINST 7050.1B • Include sufficient detail on goods or services on funding document FOR OFFICIAL USE ONLY

11. KCO2: Sufficient Budget Authority • Control Objective • Commitments and obligations do not exceed budget authority • Impact on Audit Readiness • Non-compliance with applicable laws and regulations (i.e. ADA) has the potential to result in a material audit finding • There is no evidence to support funds check • Command Action Required • Perform funds check and commit funds in FASTDATA (or STARS-FL if not on FASTDATA) • Non-Research & Development Activities should use FASTDATA FOR OFFICIAL USE ONLY

12. KCO3: Timely Recording of Obligation • Control Objective • All obligations are recorded in correct period • Impact on Audit Readiness • Recording obligations in incorrect period could improperly state “Obligations Incurred” and “Unobligated Balance” on SBR • No check to ensure obligations are posted in correct period • Command Action Required • BUMED will work on developing a corrective action to ensure obligations are recorded in the correct period • Verify correct FY • Record obligation within 10 days of Performer acceptance of funding document per DoD FMR Volume 3, Chapter 8 FOR OFFICIAL USE ONLY

13. KCO4: Accurate Recording of Obligation • Control Objective • All obligations are recorded accurately • Impact on Audit Readiness • Inaccurate recording of obligations could improperly state “Obligations Incurred” and “Unobligated Balance” on SBR • No check to ensure obligations are posted accurately (correct amount, Treasury account, vendor, line of accounting, or reporting entity) • Command Action Required • Review posted obligations to ensure they are accurate and recorded in correct period. FOR OFFICIAL USE ONLY

14. KCO5: Valid Obligations • Control Objective • Obligations are valid • Impact on Audit Readiness • Recording invalid obligations could improperly state “Obligations Incurred” and “Unobligated Balance” on SBR • Command Action Required • Comptroller reviews funding document for accuracy (correct FY, correct JON, funds available, proper use of funding) • Comptroller signs (e.g. NAVCOMPT 2275, NAVCOMPT 2276A, DD-448) FOR OFFICIAL USE ONLY

15. KCO6: Timely Recording of Accruals & A/P • Control Objective • All accruals & A/P are recorded in the correct period • Impact on Audit Readiness • Recording accruals & A/P could improperly state “Obligations Incurred” and “Unpaid Obligations” on SBR • IPAC posts A/P after disbursement • Command Action Required • BUMED will work on developing a corrective action to ensure payables are recorded in the correct period FOR OFFICIAL USE ONLY

16. KCO7: Accurate Recording of Accruals & A/P • Control Objective • All accruals & A/P are recorded accurately and invoices are valid • Impact on Audit Readiness • Recording accruals & A/P could improperly state “Obligations Incurred” and “Unpaid Obligations” on SBR • Lack of documentation to support posted A/P • Command Action Required • BUMED will work on developing a corrective action to ensure payables are recorded accurately and invoices are valid FOR OFFICIAL USE ONLY

17. KCO8: Timely Recording of Disbursements • Control Objective • All disbursements are recorded in the correct period • Impact on Audit Readiness • Recording disbursements in the incorrect period could improperly state “Gross Outlays” on SBR • Lack of support for IPACs is a Material Weakness • Command Action Required • BUMED will work on developing a corrective action to ensure disbursements are recorded in the correct period FOR OFFICIAL USE ONLY

18. KCO9: Disbursements are Valid & Accurately Recorded • Control Objective • All disbursements are valid and recorded accurately • Impact on Audit Readiness • Recording invalid or inaccurate disbursements could improperly state “Gross Outlays” on SBR • Lack of support for IPACs is a Material Weakness • Command Action Required • BUMED will work on developing a corrective action to ensure disbursements are valid and recorded accurately FOR OFFICIAL USE ONLY

19. KCO10: Review of Obligations and Accruals • Control Objective • All obligations and accruals are validated and adjusted • Impact on Audit Readiness • Unadjusted obligations could improperly state “Obligations Incurred” and “Unobligated Balance” on SBR • Unadjusted accruals could improperly state “Obligations Incurred” and “Unpaid Obligations” on SBR • Command Action Required • Thorough annual review of each support agreement, and appropriate closeout with accounting • Thorough triannual review (ADL report) per Non-Daily Accounting SOP, Section 4.1 FOR OFFICIAL USE ONLY

20. KCO10: Annual Review • Annual Review Checklist • Required by Required by BUMEDINST 7050.1B • Required by Support Agreement: Receiver-Side SOP, Sections 3.8 and 4.3 • Tracked quarterly in Spotlight Metrics FOR OFFICIAL USE ONLY

21. RWO-Grantor: Key Supporting Documentation FOR OFFICIAL USE ONLY

22. Lack of Supporting Documentation for RWO-G Disbursements • Issue Detail • There is lack of supporting documentation for disbursements related to reimbursable work orders. • The disbursements are accounted for by DFAS, and BUMED has little oversight of this process since the disbursement originates with the Performer agency. • Disbursements related to RWO-G were $36 Million in Q1 of FY12. • Impact on Audit Readiness • Transactions can not be validated as accurate by an auditor if they are not supported by documentation. • With no proof of disbursements being recorded for the proper amount, to the correct line of accounting, or in the proper period, BUMED has no support for these amounts reported on the financial statements. FOR OFFICIAL USE ONLY

23. Lack of Supporting Documentation for RWO-G Disbursements • Path Forward • The Reimbursable Work Orders Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Any potential solution must include: • A standardized key supporting document for disbursements related to reimbursable agreements that can be obtained by all activities executing such agreements. • Coordination with trading partners to ensure that documentation includes a valid, quantified measure of cost for services provided • Coordination with third party accounting service provider (DFAS) to ensure that any supporting documentation currently obtained can be provided to Navy Medicine upon receipt for the purpose of review and approval of disbursement amounts. FOR OFFICIAL USE ONLY

24. Reimbursable Work Order – Performer • (Non-Uniform Business Office) FOR OFFICIAL USE ONLY

25. KCO1: Timely Recording of Unfilled Orders • Control Objective • All unfilled customer orders are recorded in the correct period • Impact on Audit Readiness • Recording unfilled orders in improper period could improperly state “Change in Unfilled Customer Orders” or “Spending Authority from Offsetting Collections” on SBR • Lack of controls to ensure unfilled customer orders are recorded in the correct period • Command Action Required • Ensure unfilled customer orders are recorded in the correct period FOR OFFICIAL USE ONLY

26. KCO2: Valid/Accurate Recording of Unfilled Orders • Control Objective • All unfilled customer orders are valid and recorded accurately • Impact on Audit Readiness • Recording invalid or inaccurate unfilled orders could improperly state “Change in Unfilled Customer Orders” on SBR • Lack of controls to ensure unfilled customer orders are valid and recorded accurately • Command Action Required • Verify that LOA and amount on funding document matches what posts to STARS-FL FOR OFFICIAL USE ONLY

27. KCO3: Obligation of Reimbursable Authority • Control Objective • Obligations incurred in performing customer work do not exceed reimbursable authority • Impact on Audit Readiness • Audit requires report on legal compliance (ADA) • Lack of controls to ensure obligations do not exceed reimbursable authority • Command Action Required • Comptroller reviews funding document for accuracy (correct FY, correct JON, funds available, proper use of funding) • Comptroller signs (e.g. NAVCOMPT 2275, NAVCOMPT 2276A, DD 448-2) • Ensure advance occurs prior to establishing reimbursable authority or incurring costs for non-Federal entities FOR OFFICIAL USE ONLY

28. KCO4: Timely Recording of Accruals and A/R • Control Objective • All accruals and/or A/R are recorded in correct period • Impact on Audit Readiness • Recording unfilled orders in incorrect period could improperly state “Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR • A/R posted after collection • Command Action Required • BUMED will work on corrective action to address STARS-FL posting logic FOR OFFICIAL USE ONLY

29. KCO5: Valid/Accurate Recording of Accruals & A/R • Control Objective • All accruals and A/R are valid and recorded accurately • Impacton Audit Readiness • Recording invalid or inaccurate accruals and/or A/R could improperly state “Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR • Lack of documentation to ensure A/R is valid and posted accurately • Command Action Required • BUMED will work to develop a corrective action to ensure A/R is valid and accurate FOR OFFICIAL USE ONLY

30. KCO6: Timely Recording of Collections • Control Objective • All collections are recorded in the correct period • Impact on Audit Readiness • Recording collections in incorrect period could improperly state “Change in Uncollected Payments from Federal Source” and “Offsetting Collections” on SBR • Lack of controls and documentation to ensure collections are posted in the correct period • Command Action Required • BUMED will work to develop a corrective action to ensure collections are recorded in the correct period • Non-Federal agreements – ensure advance occurs prior to establishing reimbursable authority or incurring costs FOR OFFICIAL USE ONLY

31. KCO7: Valid/Accurate Recording of Collections • Control Objective • All collections are valid and recorded accurately • Impact on Audit Readiness • Recording invalid or inaccurate collections could improperly state “Change in Uncollected Payments from Federal Source” and “Offsetting Collections” on SBR • Lack of controls and documentation to ensure collections are valid and recorded accurately • Command Action Required • BUMED will work to develop a corrective action to ensure collections are valid and recorded accurately FOR OFFICIAL USE ONLY

32. KCO8: Adjustments • Control Objective • All expired orders, unfilled orders, uncollected A/R are validated • and adjusted • Impact on Audit Readiness • Unadjusted unfilled customer orders could improperly state “Change in Unfilled Customer Orders” on SBR • Unadjusted invalid receivables could improperly state “Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR • Command Action Required • Thorough annual review of each support agreement, and appropriate closeout with accounting FOR OFFICIAL USE ONLY

33. KCO8: Annual Review • Annual Review Checklist • Required by BUMEDINST 7050.1B • Tracked quarterly in Spotlight Metrics FOR OFFICIAL USE ONLY

34. RWO-Performer: Key Supporting Documentation FEDERAL vs. NON-FEDERAL Non-Federal: Advance (202) precedes Reimb Authority (121) Federal: Reimb Authority (121) precedes Collection (202) For Non-Federal Customers: Do Not Record Reimbursable Authority in Excess of Advance! FOR OFFICIAL USE ONLY

35. Lack of Supporting Documentation for RWO-P A/R & Collections • Issue Detail • No Key Supporting Documentation for Execution Code 201(Receivables) and 202 (Collections) - Navy Medicine does not receive/retain any supporting documentation for the receivables and collections related to services provided under reimbursable agreements. • Accounting is done by DFAS, and BUMED has little oversight of this process. • Receivables related to RWO-P were $17.3 Million in Q1 of FY12. • Impact on Audit Readiness • Transactions can not be validated as accurate by an auditor if they are not supported by documentation. • With no proof of receivables & collections being recorded for the proper amount, to the correct line of accounting, or in the proper period, BUMED has no support for these amounts reported on the financial statements. FOR OFFICIAL USE ONLY

36. Lack of Supporting Documentation for RWO-P A/R & Collections • Path Forward • The Reimbursable Work Orders Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Any potential solution must include: • A standardized key supporting document for receivables & collections related to reimbursable agreements that can be obtained by all activities executing such agreements. • Coordination with trading partners to ensure that documentation includes a valid, quantified measure of cost for services provided • Coordination with third party accounting service provider (DFAS) to ensure that any supporting documentation currently obtained can be provided to Navy Medicine upon receipt for the purpose of review and approval of billing & collection amounts. FOR OFFICIAL USE ONLY

37. Conclusion • Actions You Can Take at Your Command • Fully implement Support Agreement: Receiver Side SOP • Review posted obligations and unfilled customer orders to ensure they are posted accurately • Retain all Key Supporting Documentation so that it is ready for audit • Use MICP/CLT/Command Evaluation program to candidly assess RWO processes & fix problems The key to audit readiness is in YOUR hands! FOR OFFICIAL USE ONLY

38. Questions? FOR OFFICIAL USE ONLY