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

1. Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training Symposium Federal and Non-Federal Receivables: Path to Audit Readiness June 5th – 6th, 2012

2. Audit Readiness • Context • DoD is required to assert audit readiness for the Statement of Budgetary Resources (SBR) by the end of Fiscal Year 2014. As part of Navy Medicine’s audit readiness effort, the Federal and Non-Federal Receivablesbusiness processes has been identified as an assessable unit for which assertion must take place. • Purpose • To discuss the Key Control Objectives (KCOs), Key Supporting Documents (KSDs), identified gaps and potential corrective actions for Federal and Non-Federal Receivables. • Outcome • An understanding of the status of the Federal and Non-Federal Receivablesassessable units, including major deficiencies and what can be done now at the field level to facilitate a successful financial statement audit. • Some assessable units may not require field action at this time. FOR OFFICIAL USE ONLY

3. Receivables Scope & Definitiion 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. Key Control Objectives (KCOs) KCOs – Represent outcomes needed to achieve proper financial reporting and are a basis by which the effectiveness of control activities can be evaluated. FOR OFFICIAL USE ONLY

7. Key Control Objectives (KCOs) FOR OFFICIAL USE ONLY

8. Key Control Objectives (KCOs) FOR OFFICIAL USE ONLY

9. Key Supporting Documentation – Federal Receivable KSDs – Documentation retained to support individual financial transactions and accounting events. FOR OFFICIAL USE ONLY

10. Key Supporting Documentation – Non-Federal Receivable FOR OFFICIAL USE ONLY

11. Deficiency Types • Material Weakness: A deficiency, or combination of deficiencies, in internal 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

12. 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 SOP is in place that meet financial reporting requirement FOR OFFICIAL USE ONLY

13. Federal and Non-Federal Receivable Material Weaknesses • Material Weakness 1: Unfilled customer orders are not recorded in the accounting system • Material Weakness 2: Medical billings/Receivables are not recorded in the accounting system until collections are received FOR OFFICIAL USE ONLY

14. Unfilled customer orders are not recorded • Issue Detail • No unfilled customer orders are recorded in STARS-FL. • Unfilled customer orders should be recorded to present authority derived from providing services for which costs will be incurred. • By not recording unfilled customer orders, we are causing a required cost transfer once collections are made for services provided. • This is a departure from GAAP, and an audit deal breaker. • Impact on Audit Readiness • If the unfilled customer order is not recorded, the authority to provide services to other federal agencies is not being adequately reported on the financial statements until after those services are provided, which will result in a materially misstated “Change in Unfilled Customer Order" line item on the SBR. FOR OFFICIAL USE ONLY

15. Unfilled customer orders are not recorded • Path Forward • A Corrective Action Plan will be Developed for implementation by the Activities. Potential solutions would vary between Federal and Non-Federal business processes: • For Federal Receivables, implementation of the Inter-Agency Agreement currently being put into place with the United States Coast Guard could materially change the accounting for this process and may remediate this Material Weakness if implemented correctly as written. The corrective action would focus on how to implement and execute similar IAA for other agencies services at Navy Medicine MTFs. • For Non-Federal Receivables, Navy Medicine is a unique service provider, and industry experts will need to be consulted to determine how to derive an expected authority from insurance companies based on eligible personnel being serviced who have Other Health Insurance (OHI). FOR OFFICIAL USE ONLY

16. Receivables are not recorded until collections are received • Issue Detail • Receivables are not entered into STARS-FL until they have been collected. Current Navy Medicine guidance dictates that the MTFs should not establish reimbursable authorization until collection and therefore cannot recognize the receivable at the time services are rendered. • DOD Comptroller issued Defense Health Program (DHP) Accounts Receivables Policy dated May 2, 2008 stating all DHP-funded activities will recognize and record a receivable when it establishes a claim based on goods or services provided. • This is a departure from GAAP, and an audit deal breaker. • Impact on Audit Readiness • Recording accounts receivable upon receipt of collections causes the account receivables balances to not be recorded in the proper accounting period, if at all. This material weakness significantly impacts the SBR because the account receivable and revenues balances are not fairly represented. FOR OFFICIAL USE ONLY

17. Receivables are not recorded until collections are received • Path Forward • The Federal & Non-Federal Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Potential solutions may vary between Federal and Non-Federal business processes, but would include two key phases: • Phase One: Development of a GAAP compliant, achievable, sustainable ‘to-be’ business process that incorporates current internal controls and key supporting documents where possible. • Phase Two: Development of a plan for implementation of the ‘to-be’ process across the organization, including: • Timeline for implementation • Actions necessary to implement new process • Roles and responsibilities for affective personnel • Reporting requirements to document process with Audit Readiness PMO. FOR OFFICIAL USE ONLY

18. Other Receivables Deficiencies • Control Deficiency 1: Inconsistent or inaccurate execution of patient registration for completion of Third Party Collection Program/Medical Service Accounts/Other Health Insurance (OHI) – DD 2569 forms FOR OFFICIAL USE ONLY

19. Inconsistent Use or Inaccurate Completion of DD 2569 Forms • Issue Detail • The Assessment Team identified several Activities that are not obtaining an accurate and current DD 2569 for all patients that receive treatment. • Currently, procedures/methods/controls used by clinic personnel are subject to error and great variation in the DEERS check. An incorrect patient registration and/or failure to obtain/enter OHI data potentially results in non-recognition of a receivable. • Impact on Audit Readiness • Missing or incomplete DD 2569s affects the Activity’s ability to properly bill and collect from the responsible party, resulting in unrecorded accounts receivable. • Path Forward / Potential Activity Action • Improve the collection and completion of DD 2569 forms FOR OFFICIAL USE ONLY

20. Questions? FOR OFFICIAL USE ONLY