Internal Management Controls

1. Internal Management Controls Tri-SERVICE MEPRS CONFERENCE 28 August 2007

2. Supporting Business Transformation - A Mandate for Integrated and Accountable Activity Processes The MEPRS program must incorporate internal management controls to support both Business Planning and Financial Improvement Program (FIP) initiatives. These initiatives require an understanding of policy, organizational performance, and activity operations and are driving the MHS to Performance Based Decisions. Management at all levels of the organization must focus on the following to ensure reliability of data: Process inputs and outputs and internal controls Internal management controls are defined as: “Integration of activities, plans, attitudes, policies, systems, resources and efforts of the people of an organization working together to provide reasonable assurance that the organization will achieve its objectives and mission.” Objectives of Internal Control Effectiveness and Efficiency of Operations Reliability of Financial Reporting Compliance with Applicable Laws and Regulations

3. Decisions are Based on Data – Performance Based Decisions Data is useful for measuring and answering “where we are” against planned mission goals and objectives. Users of the Accounting Data Comptrollers and Managers Use for Operating Decisions Activity Leadership, Regional Offices & Policy Staffs Use for Long-Range Strategic Decisions Transaction and Financial Cost Accounting Data (MEPRS/EAS) Must be Accurate, Timely and Reliable – Integrated Processes at the Activity Level are Required.

4. Transaction and Managerial Reporting – Provides the full spectrum of Costs and FTEs to determine – “Unit Costs” Is our data auditable? Status Quo – Costly Decision – Future Liability Outputs Drive Outcomes

5. FY 06 Expenses – Navy Summary of MTF Labor Expenses Military, Civilian and Contractor Labor 74% of Total Expenses $1,069,467,066, 26% $3,096,521,036, 74% Personnel Dir. Exp. Including Contracts All Other Expenses

6. FY 06 Expenses – Army Summary of MTF Labor Expenses Military, Civilian and Contractor Labor 74% of Total Expenses $1,437,679,358, 26% $4,166,487,601, 74% Personnel Dir. Exp. Including Contracts All Other Expenses

7. FY 06 Expenses – Air Force Summary of MTF Labor Expenses Military, Civilian and Contractor Labor 72% of Total Expenses $1,001,732,094, 28% $2,518,384,635, 72% Personnel Dir. Exp. Including Contracts All Other Expenses

8. Management Tool • Internal control is a powerful tool that management can leverage to: • Provide value and integrity at every step of each financial, business and program process; • Provide timely and accurate information for management decision-making; • Support the effectiveness and efficiency of every step of each financial, business and program process; • Provide continual feedback to management; and • Provide trust and confidence in accounting and reporting practices. • Effective and efficient internal control allows management to focus efforts on its key mission as opposed to managing one crisis after another.

9. Operational Assessment Program for Internal Processes • Assesses the resource management MEPRS/EAS Program. • Supports the Business Plan/Critical Initiatives for Improved Labor Reporting. • Useful tool to provide internal procedures which will assist with existing DoD, DFAS, DA, TMA, and MEPRS policies and procedures is provided below.

10. Methodology Step 1: Identify Key Business Processes and Significant Accounts Significant accounts are accounts that individually or collectively could have a material effect on the financial report. Step 2: Identify Major Classes of Transactions Major classes of transactions are those classes of transactions that are significant to the company's financial statements. Routine – Nonroutine – Accounting Estimate Step 3: Identify Processes The specific processes and document flow involved in each class of transactions. Step 4: Identify and Document Sub-processes Understand how transactions are initiated, authorized, recorded, processed, and reported. Understand the period end financial reporting process. Step 5: Identify, Document and Assess Risks Identify the points within each sub-process at which a misstatement could arise and assess the impact on managements assertions. Step 6: Identify, Document and Assess Control Activities Identify and assess the controls that management has implemented to respond to the risk. Assess Design Effectiveness: Effective – Moderately Effective – Not Effective Deficiencies, Redundancies and Inefficiencies Step 7: Test Effectiveness of Control Activities Test control activities to determine the extent to which the controls were applied, the consistency of their application, and who applied them. Assess Operating Effectiveness: Effective – Moderately Effective – Not Effective Deficiencies, Redundancies and Inefficiencies Financial Management Transformation Plan Prioritize, manage and track deficiencies, redundancies and inefficiencies and remediation efforts agency wide.

11. FY 08 MMIG Suggested Objectives and Goals for Labor • Objective: To improve military labor reporting in MEPRS/EAS. • Goal: 100% of military personnel time and expenses reported in compliance with expense business rules. • Data source: • Service legacy system (SPMS, UCAPERS, EAS-SA)/DMHRSi is the system used to report and distribute time and expenses for military personnel. • Resource: • The document embedded below provides the specific business rules for reporting available and non-available time/hours for MEPRS/EAS for all personnel types. Source: Revised DoD 6010.13-M (MEPRS Manual), Appendix 3. • Expense Reporting - Tri-Service Business Rules: • The composite pay rates are determined by the DoD comptroller and are used for costing military labor in the accounting system and MEPRS/EAS.

12. FY 08 MMIG Suggested Objectives and Goals for Labor • Objective: To improve distribution of contract labor hours and expenses. • Goal: 100% of contract expenses are distributed to where the contract services are performed. Contracting “CLIN” labor distribution issues are forwarded to the Regional Commands. Regional Commands provide analysis of gaps. Financial Improvement Program (FIP) provides policy direction and addresses gaps. • Data source: • Personnel time for contractors is provided by Service level legacy system (SPMS, UCAPERS, EAS-SA)/DMHRSi. However, the data source for the expenses are provided by the accounting system. • Distribution Example: • Resource: • Service-level guidance, in support of proper distribution of contract services rendered is embedded below.

13. Defense Medical Human Resource System-internet (DMHRSi) and Internal Management Controls EAS IV Assigned Personnel Report • All data elements must be correct and complete • Assigned FTE calculation for the EAS Interface file • Only displays those employees that have an organization at the MTF EAS IV Summary View and Project View Reports • Summarizes DMHRSi human resource and labor cost information • Calculates FTEs by DMIS ID • Tool to use to validate workload against man-hours Cost Reconciliation Reports • Compares hours and cost in Defense Civilian Payroll System (DCPS) to DMHRSi • Payroll correction • Ensures data accuracy

14. FY 08 MMIG Suggested Objectives and Goals for “Cost Per Unit” Data • Objective: Improve reporting of departmental efficiency (i.e., production) and cost effectiveness (i.e., direct expenses and allocated expenses). • Goal: Improve MTF expense cost per unit data for inpatient, outpatient and ancillary data (i.e., where cost per is mainly attributed to labor expenses with limited output). • Goal: Less than 5% variance between MEPRS/EAS and the Service level Accounting system per MEPRS code (prior and current fiscal years). • Goal: Incorporate business planning analysis into POM projections (i.e. for different types of labor or decreased labor currently being POM’D).

15. TIME SHEET COMPLETED PROPERLY WITH 20% OF AVAILABLE TIME CHARGED TO administrative time AND READINESS. FY 08 MMIG Suggested Objectives and Goals for “Cost Per Unit” Data • Goal: Improve MTF expense cost per unit data for inpatient, outpatient and ancillary data. (i.e., where cost per is mainly attributed to labor expenses with limited output). • Resource: • The documents embedded below provide examples of the variance in cost per unit data for the same service due to under/over-reporting of labor expenses. Failure to properly annotate readiness or other activities on timesheets/templates will result in an increase or decrease to the cost per visit. TIME SHEET COMPLETED all available time charged to the clinic. $90 Per Visit = / FTEs WORKLOAD FTEs / WORKLOAD = $80 Per Visit

16. FY 08 MMIG Suggested Objectives and Goals for Financial Reconciliation • Goal: Less than 5% variance between MEPRS/EAS and Accounting at the MEPRS code level (prior and current fiscal years). • Data Source: • MEPRS/EAS • Service Level Financial System • Resource: • The document embedded below provides a summarized Navy reconciliation report displaying the percent variance by SEEC for FY 06 and four prior fiscal years.

17. FY 08 MMIG Suggested Objectives and Goals for Labor Goal: Incorporate business planning analysis into POM projections (i.e. for different types of labor or decreased labor currently being POM’D). • Business Plan Critical Initiative – Requires a Internal Management Control Process • Provide a clearly stated issue to be addressed with a statement of current performance with variables or measures that are outside of acceptable performance standards. • Does the targeted issue for improvement have a stated performance measure or goal defined (i.e., will improve by X %)? • Does the plan identify requirements needed to ensure success (time, money, people, etc.)? • Is a method of monitoring articulated? • Is there an impact statement as to how success of the plan will improve the organizations/MTFs bottom line (i.e., control labor cost, result in lower costs such as cost per RVU, etc.)? Efficiency and Cost Effectiveness (Production and Cost to Produce)

18. Internal Controls Over Financial Reporting Designed to provide reasonable assurance regarding the reliability of financial reporting. Monitor Implement Controls Develop Detailed Risk Strategy Identify Risks Inherent to Processes and Procedures Identify Processes and Procedures Required to Achieve Objectives Identify Financial Reporting Objectives

19. Questions?