Auditability Update ASMC National Capital PDI Navy Break-Out Session Ms. Karen Fenstermacher

1. Auditability Update ASMC National Capital PDI Navy Break-Out Session Ms. Karen Fenstermacher Deputy Assistant Secretary of the Navy (Financial Operations) 3 March 2015

2. Agenda • FY2015 Navy SBA Audit Status • Game Plan for Full Financial Auditability by FY2017 • What’s Left to Do – the Big Rocks • Accomplishments to Date • Discussion

3. Milestone: Navy’s initial SBA Audit began in December 2014 Report to Congress on Full Financial Statement Audit AuditSchedule of Budgetary Activity AssertionSchedule of Budgetary Activity AuditFull Financial Statements Existence & Completeness Assertions AssertionFull Financial Statements 2014 2015 2016 2017 2018 2019 Planning Phase December 17 – May 20* Control Phase April 16 – August 31* Test Phase July 1 – November 11* Report Phase October 1 – November 13* Major Activities • Auditors develop samples and initiate testing of financial transactions • Commands provide key supporting documentation • Auditors perform walk-thrus of business processes and internal controls • Orgs support with explanations, documentation • Auditors evaluate test results to determine compliance with financial audit regulations • A report of findings is provided to DON • Auditors gain understanding of business operations • Audit plan is developed Command Involvement Low Medium High Medium *All dates are Cotton & Company estimates

4. Command Roles – During Audit and Beyond Commands provide information and documentation during an audit. However, active audit participation does not end with the Audit Report. Weaknesses must be corrected., and corrective actions must be sustained. Notice of Findings and Recommendations (NFRs) – Why do they matter? • NFRs outline weaknesses and concerns that need to be addressed by the DON • Addressing NFRs will require collaborative discussions that will shape solutions and probably require resources • Corrective actions must be implemented by relevant commands – or the entire Enterprise NFRs can have a wide impact on the DON Enterprise. CAP implementation will require: Navy action on NFRs: promptly implementing CAPs. Progress on CAPs will be noted during successive audits. Priorities Audit findings will identify necessary changes to business processes and systems During the audit, respond promptly to auditors’ requests for documentation – Know your business and document it! Audit Notice of Findings and Recommendations (NFRs) will drive Corrective Action Plans (CAPs) • Example: NFRs on Navy/USMC Reimbursable Work Order processes spurred move toward a DON-wide automated solution -- Invoice Processing Platform (IPP)

5. On to FY2017: Validated SBA entries will support lines on the three other statements Work performed to prepare the SBA for audit can be leveraged for the other three financial statements – providing momentum toward the FY 2017 goal of full financial statement auditability - % Applicability to Additional Statements - Balance Sheet ~49% ~39% Schedule of Budgetary Activity Crosswalks Statement of Net Cost Posting Logic Analysis ~78% Functional Assessment (Processes/ Controls) Statement of Changes in Net Position ~72% Single Statement Auditability Full Financial Statement Auditability

6. Navy’s game plan to reach full auditability by FY2017 Checkpoints FY16 FY17 FY18 FY15 SEP Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep General Fund Statement of Budgetary Resources (Wave 2) Financial Statement Audit Begins Assertion Confidence Checkpoint 01/31 10/1 9/30 FIAR Financial Statement Audit Begins 10/1** Assertion* Confidence Checkpoint 01/31 Navy 9/30 Assertion* 9/30 Potential AUP Engagement 3/31 Financial Statement Audit Begins Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position (Waves 3 & 4) Potential AUP Engagement Assertion 10/1 3/31 9/30 FIAR Assertion* 9/30 Financial Statement Audit Begins 10/1** Confidence Checkpoint 2/28 Confidence Checkpoint 10/30 Navy Working Capital Fund Statement of Budgetary Resources (Wave 2) 9/30** Financial Statement Audit Begins Assertion 9/30 10/1 FIAR Financial Statement Audit Begins 10/1** Assertion* 9/30 Confidence Checkpoint 01/31 Navy Confidence Checkpoint 01/31 Potential AUP Engagement 3/31 Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position (Waves 3 & 4) Financial Statement Audit Begins Assertion 10/1 9/30 FIAR Assertion* 9/30 Financial Statement Audit Begins 10/1** Confidence Checkpoint 10/30 Navy Confidence Checkpoint 10/30 Potential AUP Engagement 3/31 The dates above are tentative dates as we are still working to finalize our full financial statement auditability strategy. Once the strategy is complete, we will make changes to the dates as needed. *Navy’s intent is to iteratively build beginning balances each year starting with FY15. This approach per OUSD(c) must be approved by GAO and DODIG. Navy dates are contingent upon Beginning Balance approach being approved, and are reflected above with the Navy Date icon. **Navy’s intent is to forego examinations and initiate full financial statement audit in accordance with NDAA of 2010. FIAR Dates NDAA Mandate Confidence checkpoints will occur to assess progress to date made for audit readiness tasks performed. Tasks and timelines will be re-evaluated and, if needed, revised. Navy Dates

7. What the Chart Says -- Flexible approach to maximize audit readiness by the end of FY2017

8. On The To-Do List -- Many hands on the wheel will be required!

9. Solid Achievements To Date Sense of urgency must continue to meet FY2017 goal