“Going to Audit”

1. “Going to Audit” Presented To: Navy/Marine Corps Service Day Workshop American Society of Military Comptrollers (ASMC)Professional Development Institute (PDI)Mr. Marc Brito27 May 2009

2. Agenda • Audit: The Journey • Know your Environment • Test, Remediate…….Test, Remediate……Assert • Validate (OIG & OSD) • Education & Communication • Organization Infrastructure • Preparation: Top to Bottom • Audit: Journey’s End • Sustainment-to-Audit

3. Audit: “The Journey” – What is it? Management achieving Reasonable Assurance that: • Events and transactions are Fairly Presented on the financial statements and in the notes to those statements, • Internal control policies, procedures and the environment are Sufficiently Reliable, • Direct, or • Compensating, and • Compliance with applicable Laws and Regulations is Transparent and Verifiable. (OMB Bulletin No. 07-04, as amended)

4. Going to Audit: It’s All About the “Know” • Know your business............Know your financial environment • Processes & Systems • Financial Statement Presentation • Internal Controls • Laws & Regulations • Know how your business events become your financial transactions • Know what documents support your events and transactions • Know how your transactions are recorded in your general ledger • Know which transaction posts to which financial statement line • Know how to go from “accumulate to record to report”

5. Know your financial environment: What does this mean? • Financial Environment is logically divided into auditable components to achieve incremental audit readiness recognizing: • Current Operations (annual budget) • Statement of Budgetary Resources • Historical Costs (Capital Assets) • Balance Sheet • Link Events and transactions (source documentation) to General Ledger (financial statements) • Consistent and verifiable reconciliation of budget with annual obligations and expenditures (Remember the importance of the FBWT reconciliation process?)

6. Know your Events and Transactions Forward or Backward • Financial Statements • Financial Statement Line Items • Reporting System • General Ledgers • Core Accounting System • Feeder Systems • Financial Events • Business Events Process Flows Transactions • Step One - Understand your financial environment from the event & transaction through the General Ledger to Financial Statement Line • Step Two - Evaluate, Test and Validate consistently in-house and through third party concurrence (OIG & OSD)

7. Test to Assert: Financial Statement Assertions • Existence – Assets, Liabilities and Equity exist • Occurrence – Transactions and events that have been recorded have occurred and pertain to the entity. • Rights and Obligations – The entity holds or controls the rights to assets, and the liabilities are the obligations of the entity. • Valuation and Presentation – Assets, liabilities and Equity interests are included in the financial statements at the appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. • Completeness – All transactions and events that should have been recorded have been recorded. “Management is responsible for the fair presentation of financial statements” (SAS No. 106 – Audit Evidence)

8. Testing & Remediation: Lessons Learned • First and Foremost ………”Stop the Bleeding” • Transaction level detail is critical • Integral support from, and reliance on, third party service providers • DFAS (MOCAS) • BTA (DTS, WAWF) • Clear understanding of systems environment from source documentation to financial statement presentation: • From Feeder Systems to Core Financial System • Third Party Service Providers

9. Testing & Remediation: Lessons Learned (2) • Documented Policies, Procedures and Organizational Structure • General Ledger and Control Accounts Must Reconcile to Financial Statements • Organizational Infrastructure Must be in Place to Respond Timely to Auditor Documentation and Information Requests • Authorization and Certification for Approvals for Each Event and Transaction Fully Documented • Funds Balance with Treasury Reconciliation at Transaction Level for all Appropriations Including Shared Appropriations. (This step is critical for all financial statements - individually and collectively)

10. Education & Communication • Organizational Infrastructure – Is everybody ready? • Audit liaison function – focal point for communication • Auditor and client interaction: • Documentation and Information • Electronic? • Hard copy? • Repository? • Timeline for delivery • Preparation: Top to Bottom • Training and message: consistent expectations • Spread across the Globe

11. Journey’s End? – Just the Beginning • Third party verification of management achieving audit readiness, • Sustainable condition to successfully meet pending audit engagement, and • Maintain achievements in future years.

12. Questions ?