bureau of medicine and surgery 2012 navy medicine audit readiness training symposium
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Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium. Consumables: Path to Audit Readiness June 5 th – 6 th , 2012. Audit Readiness. Context - PowerPoint PPT PresentationTRANSCRIPT
Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training
Symposium
Consumables: Path to Audit Readiness
June 5th – 6th, 2012
FOR OFFICIAL USE ONLY
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 Consumables business process 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 Consumables.
Outcome An understanding of the status of the Consumables assessable
unit, 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.
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Consumables Scope/Definition
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Definition Consumables includes the request, acquisition (including purchase cards), receipt, maintenance and invoicing of Operating Materials & Supplies. Major business processes include: •Requisition Execution / Commitment•Source of Goods/Obligations•Receipt/Acceptance•Expenditure / Disbursement•De-obligations
Assessable Unit Lead/Team
CAPT James PoindexterDavid Hamblett
Assessable Unit Support
Kevin Norman – [email protected] Mackey – [email protected]
Q1 FY12 Obligations $ 223M
Audit Readiness Timeline
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FY12 FY13 FY14
Assessable Units – Wave 2 Max Assertion Date
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Travel 4 SEP 2012
Consumables 3 DEC 2012
Reimbursable Work Orders – Grantor
3 DEC 2012
Reimbursable Work Orders – Performer (Non-UBO)
1 APR 2013
Military Payroll (including RPN) 1 APR 2013
Contract Administration 1 JUL 2013
Non-Federal Receivables (UBO/Medical Treatment)
1 JUL 2013
Federal Receivables (UBO/Medical Treatment)
3 SEP 2013
Civilian Payroll 2 DEC 2013
Financial Reporting 2 DEC 2013
Funds Management (FBWT) 2 DEC 2013Assessable Unit AssertionInterim Progress
Milestones (90 Days, 50 %, 75 %)
Control Testing Time Period
Audit Readiness Process
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Tasks Work ProductsComplet
ed
Document Assessable Units
1Determine which key business processes are Assessable Units
• Process Narrative
• Process Flowchart
Mar. 1st
2Document Assessable Units through interviews and observation
Assess Internal Controls3 Determine control objectives for each Assessable Unit
• Control Assessment
Mar. 1st
4 Highlight internal controls in process documentation
5Assess whether controls are effective in meeting control objectives
Assess Supporting Documentation
6Determine what supporting documents exist for each transaction type • Key Supporting
Document Matrix
Apr. 16th
7Assess whether there are any unsupported transactions
Identify and Prioritize Deficiencies
8Create list of deficiencies for any objectives that are not met or transactions that are not supported • Deficiencies
ListingApr. 30th
9 Prioritize deficiency list based on audit criteria
Key Control Objectives (KCOs)
KCO #
KCO Description
Execute Requisition (Need for Contract)
1 Amounts do not exceed funding authority
Source Goods
2 All obligations are recorded in the proper period
3aAll obligations are recorded in the correct amount and line of accounting
3bAll obligations represent a valid need that is authorized and approved
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KCOs – Represent outcomes needed to achieve proper financial reporting and are a basis by which the effectiveness of control activities can be evaluated.
Key Control Objectives (KCOs)
KCO #
KCO Description
Receipt/Acceptance
4aAll accruals and payables are recorded in the proper period
4bAll accruals and payables represent valid transactions that are authorized and approved
4cAll accruals and payables are recorded in the correct amount and line of accounting
Disbursement
5 All disbursements are recorded in the proper period
6a All disbursements are recorded in the correct amount and line of accounting
6bAll disbursements represent valid transactions that are authorized and approved
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Key Control Objectives (KCOs)
KCO #
KCO Description
De-obligation
7a All de-obligations are recorded in the proper period
7bAll de-obligations are recorded in the correct amount and line of accounting
7cAll de-obligations represent a valid need that is authorized and approved
Information Technology
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User access is consistent with assigned rights and privileges in accordance with Federal Information System Controls Audit Manual (FISCAM) requirements
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Key Supporting Documentation - DMLSS
Execution Code
Description of Transaction
Key Supporting Documentation
540 To record direct obligation
•DD 1155 (Order for Supplies or Services)• Local Procurement Document
510 To record the payable and reduce the outstanding obligation
•DD 250 (Material Inspection and Receiving Report) •Packing Slip
610 To record the fund disbursement and reduce the payable
•Certified Invoice
WRT To record deobligation of unexpended balances
•Final InvoiceFOR OFFICIAL USE ONLY
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KSDs – Documentation retained to support individual financial transactions and accounting events.
Key Supporting Documentation – Purchase
Card
Execution Code
Description of Transaction
Key Supporting Documentation
540 To record bulk obligation
• Locally Prepared Procurement Document
510 To record the payable and reduce the outstanding obligation
• DD 250 (Material Inspection and Receiving Report)
• Packing Slip or Shipping documentation
610 To record the fund disbursement and reduce the payable
• Certified Citibank Statement; Invoice
• Packing Slip/Shipping documentation
WRT To record deobligation of unexpended balances
• Final InvoiceFOR OFFICIAL USE ONLY
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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.
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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
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Consumables Material Weaknesses
Material Weakness 1: Inconsistent use of the Disbursement Reconciliation Tool (DRT) in DMLSS
General Causes: Uniform Compliance Reliance on Systems Controls
Material Weakness 2: Inadequate proof of receipt
General Causes: Lack of standardized documentation & process Multiple control points
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Inconsistent Use of the DRT in DMLSS
Issue Detail The Audit Readiness team identified transactions where the
Disbursement Reconciliation Tool (DRT) was not used. The DRT is an enhanced business process within DMLSS that
compares the dollar amount of goods received in DMLSS to the dollar amount disbursed in STARS-FL (EC610).
If the DRT is not used, amounts disbursed in STARS-FL may differ from the receipt amount recorded in DMLSS and will not be reviewed/reconciled.
Impact on Audit Readiness The DRT is considered a critical control activity as it provides
management with a systematic monitoring tool to identify and resolve errors between the logistics system and the system of record. Inconsistent use may cause misstatements in ‘Gross Outlays’ on the Statement of Budgetary Resources to go undetected. 14
FOR OFFICIAL USE ONLY
Inconsistent Use of the DRT in DMLSS
Path ForwardA Corrective Action Plan will be Developed for implementation by the Activities. It must include:
A three way reconciliation of disbursements between DMLSS, STARS-FL and Treasury disbursement information (CHOOSE)
A review of any documents that do not pass the ‘DRT Check’ Documentation that supports the review that occurred,
including: Standardized process for reconciling items that do not pass
‘DRT Check’.
Potential Activity Actions Require users to complete DRT eLearning course at
https://jml149.dmlss.detrick.army.mil/resourcecenter/ Implement review and approval process for DRT
reconciliations once developed.15
FOR OFFICIAL USE ONLY
Inadequate Proof of Receipt
Issue Detail The Assessable Unit team noted several Activities that do not keep
packing slips or other similar shipping documentation on file. Packing slips/shipping documentation should be maintained in
order to validate that items received are correctly entered into DMLSS.
Impact on Audit Readiness If packing slips/shipping documents are not retained on file, there
is no proof of receipt of consumable goods. Accuracy of the transactions in the general ledger can not be
validated without this proof of receipt. Could result in incorrect amounts being recorded to accounts
payable or disbursed to vendors, which could potentially lead to over- or understatement of either amount on the Statement of Budgetary resources
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FOR OFFICIAL USE ONLY
Inadequate Proof of Receipt
Path ForwardA Corrective Action Plan will be Developed for implementation by the Activities. It must include:
A method for standardizing the collection and filing of packing slips Electronic data retention is optimal, but not ultimately required A reconciliation/review of amounts listed on packing slips, or other
receiving documents, to ensure that they agree to amounts entered in DMLSS and documented on the DD250.
Optimally, Mechanism built into payment process that doesn’t allow for payment unless reconciliation/review has been performed.
Potential Activity Actions Work to maintain packing slips in a standard way for
purchased consumables. Participate in development of retention strategy in relevant
SOPs via actively submitting change requests and feedback when possible.
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Other Consumables Deficiencies
Significant Deficiency 1: Inadequate Segregation of Duties for the Purchasing and Receipt functions
Control Deficiency 1: Inconsistent execution of the purchase card reconciliation process
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Inadequate Segregation of Duties
Issue Detail The Assessment Team identified instances among Activities
where it appears that the person who ordered goods was the same as the person who acknowledged receipt of the items in DMLSS
Impact on Audit Readiness If the person ordering goods is the same as the person
acknowledging receipt of the goods ordered, there is potential risk of fraud, waste and abuse violations which may impact the accuracy of financial statements
Path Forward / Potential Activity Actions Review DMLSS user access roles and responsibilities
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Inconsistent execution of the purchase card
reconciliation process
Issue Detail The Assessment Team identified inconsistencies in the
execution of the purchase card reconciliation process where Activities did not properly reconcile and/or properly record adjustments in STARS-FL
Impact on Audit Readiness If purchase card reconciliations are not performed routinely in
accordance with Navy Medicine policy, required adjustments may not be recorded in STARS-FL, which may impact the accuracy and reliability of financial statements
Path Forward / Potential Activity Actions Execute reconciliations in accordance with the Purchase Card
SOP 20
FOR OFFICIAL USE ONLY
Questions?
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