Panel Participants : Daimon Diggs, Comptroller, Naval Facilities Engineering Command, Mid-Atlantic Region

1. NWCF Activity Auditability Panel Participants: Daimon Diggs, Comptroller, Naval Facilities Engineering Command, Mid-Atlantic Region Phillip Graham, NWCF FIP Lead, DoN Office of Financial Operations John Ratcliffe, FIP Lead, Military Sealift Command Dennis Therning, Comptroller/Director, Business Operations, Naval Research Laboratory

2. NRL MSC NAVFAC WCF “NRL” (~NWCF) Assertion Qualifications Recurring Themes of Issues Keys to Success Questions/Discussion Agenda

3. NRL Auditability we are here Discovery & Corrective Action SEP-08 Assertion Validation Assessment Audit Discovery / Documentation Corrective Action / Standardization Sustainment NAS Attestation Scope NAS Attestation Results Sustainment • Maintain documentation and FIP metrics in A-123 Management Tool, iFiCCS • Continue Quarterly Testing • ~ 2-3 line items; 3-4 areas of improvement/weakness • ~ 300 transactions per qtr • Continue Process Improvement Actions • Integrating Managers’ Internal Control (MIC) Program requirements with iFiCCS capabilities • NAVAUDSVC Attestation engagement to verify that: • ~ audit trails & internal controls over financial reporting • existed • ~ corrective actions for identified weaknesses have been implemented • ~ business processes documented in Val Packs aligned with actual process • Attestation period: Aug 2007 to Jun 2008 • Final Report: 26 Sep 2008 • NRL ‘failed’ 5 out of 15 tests • ~ Inadequate Audit Trail for PP&E Disposal Process • ~ Inadequate Audit Trail for Accruals Process • ~ Inadequate Audit Trail for Source Documentation • ~ Procedures outlined in Validation Packages are not consistently followed throughout NRL divisions • ~ Internal Control Objectives were not met for PP&E, Disbursements, and Collections *Italics indicates this portion of the Scope was removed/decreased in importance in follow-on Attestation Agreed Upon Procedures

4. MSC Auditability we are here Discovery & Corrective Action MAR-09 Planned Assertion Validation Assessment Audit Discovery / Documentation Corrective Action / Standardization Sustainment NAS Attestation Scope NAS Attestation Results Sustainment • NAVAUDSVC Attestation engagement to verify that: • ~ audit trails & internal controls over financial reporting existed • ~ corrective actions for identified weaknesses have been implemented • Attestation period: Sep 2008 to Mar 2009 • Final Report: TBD • NAVAUDSVC Draft Report identified 4 reportable conditions: • ~ Authoritative source documentation not readily available • ~ Missing/incomplete authoritative source documentation • ~ Insufficiently documented and unauthorized Journal Vouchers • ~ Time consuming and cumbersome audit trails • MSC is developing corrective action plans to address NAS findings • MSC will complete additional testing when corrective actions have been implemented • MSC will continue A-123 Appendix A testing of key business process • MSC will continue maintaining business process documentation and improving financial management practices *Italics indicates this portion of the Scope was removed/decreased in importance in follow-on Attestation Agreed Upon Procedures

5. NAVFAC-WCF Auditability we are here Discovery & Corrective Action SEP-09 Assertion Validation Assessment Audit Discovery / Documentation Corrective Action / Standardization Sustainment Audit Preparation with NAVFAC Personnel NAS Attestation Scope Critical Path to DoD Assertion • Work directly with NAS to facilitate their understanding of NAVFAC’s processes and testing of transactions • Implement corrective actions for deficient processes excluded from NAS Attestation, including systems transitions for PP&E assets • Test effectiveness of implemented corrective actions to determine auditability • Performed testing on both process-related internal controls and audit trails for line item transactions (balance verification) • Incorporated lessons learned from NRL and MSC to prepare personnel for audit using a change management approach: • ~ Developed repeatable, personnel-focused test instructions and audit checklists • ~ Established network of informed POCs for NAS across Command • NAVAUDSVC Attestation to validate Q2 FY09 Balance Sheet & Statement of Net Cost • Emphasize testing transactions and minimize review of internal control effectiveness • Exclude known weaknesses or processes undergoing remediation • FMO-identified focus areas include Fund Balance with Treasury, A/P Intra and Non-Federal, A/R Intra and Non-Federal • Attestation period: May 2009 - TBD • Final Report: TBD

6. NRL Assertion Qualifications ASN (FM&C) signed Management Assertion to DoD IG and OUSD(C) on 30 Sept 2008: “NRL Financial Statements… in DDRS-AFS… are ready for audit with qualifications” • 6 Qualifications: • Balance Sheet – Accounts Payable • Financial Reporting Methodology for Real Property • Quarter/Year-end Close Out Procedures • Financial Reporting of Fund Balance with Treasury • Balance Sheet – General Equipment • Balance Sheet – Other Liabilities: Accrued Funded Payroll and Benefits ** Most qualifications are NWCF-wide, not necessarily NRL

7. NWCF Auditability Recurring Themes of ‘Issues’ Need to assess DoD/DON Business Practices Contracting Process Inter- and Intra- Agency Funding Process Longstanding documentation retention issues Determine “reasonable” and “material” standards Determine cost/benefit of system/process changes In order to MONITOR this effort, need to support and institutionalize use of iFiCCS In order to SUSTAIN this effort, need to support integration of FIP with MIC Program

8. NWCF Auditability Keys to Audit Success Balance Verification & Reconciliation Testing Internal Control Testing Audit Liaison Support Proven ability to trace from trans to source records…proven via: Balance Reconciliation: ~ Financial Statement to GL ~ GL to Subsidiary Ledger ~ Subsidiary Ledger to Trans-Level Detail Balance Verification: Collect a complete Audit Trail of selected transactions Routine testing of internal controls incumbent in the audit trail- these controls will be inspected by auditors ~ verification that controls are operating effectively ~ notes potential weaknesses and provides opportunity to resolve ~ prepares key business process personnel for audit requests/questions Understanding that ‘Burden of Proof” resides with the auditee ~ Provide highly organized document packets, highlight audit trail ~ Provide explanations for each set of documents ~ Maintain a highly detailed log of all transactions requested, documents provided, timeline of events ~ Proactively follow-up to ensure auditors understand what has been provided ~ Liaison element attends every audit meeting; detailed note-takers- catch the issues early

9. Questions/Discussion Some FAQs: • “How far out do I need to plan?” • “What documents should I expect to need to be able to provide NAS?” • “How many govt resources did you have to dedicate to the Attestation?” • “How did you get the technical/operational side of the organization to support this?” • “What issues did you run into and how do you recommend other Commands solve these in the future?”