Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training

Symposium

Reimbursable Work Orders (RWO): Path to Audit Readiness

June 5th – 6th, 2012

FOR OFFICIAL USE ONLY

Audit ReadinessContext Navy Medicine must assert audit readiness of its RWO-

Grantor and RWO-Performer (Non-Uniform Business Office) processes by 3 Dec 12 and 1 Apr 13 (respectively).

Purpose This will serve as an informational session regarding the Key

Control Objectives (KCOs), control gaps and required corrective actions, and Key Supporting Documents (KSDs) identified for RWO-Grantor and RWO-Performer.

Outcome An understanding of the status of RWO-Grantor and RWO-

Performer, including major deficiencies and what needs to be done at the field level to facilitate a successful financial statement audit.

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RWO Scope/Definition

FOR OFFICIAL USE ONLY3

Definition Reimbursable transactions supported by ISSAs, MOUs, MOAs, work requests, MIPRs, NAVCOMPT 2775s, NAVCOMPT 2276As

Performer side work orders include only non-UBO agreements

Assessable Unit Lead/Team David HowellMike BrandtEric EggerMel Becker

Assessable Unit Support Bhavin Patel – bhavpatel@deloitte.comChaz Swingle – cswingle@deloitte.com

Q1 FY12 Obligations RWO-Grantor: $109 MillionQ1 FY12 Unfilled Customer Orders

RWO-Performer: $44.2 Million

Audit Readiness Timeline

FOR OFFICIAL USE ONLY4

FY12 FY13 FY14

Assessable Units – Wave 2 Max Assertion Date Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Travel 4 SEP 2012Consumables 3 DEC 2012Reimbursable Work Orders – Grantor

3 DEC 2012

Reimbursable Work Orders – Performer (Non-UBO)

1 APR 2013

Military Payroll (including RPN) 1 APR 2013Contract Administration 1 JUL 2013Non-Federal Receivables (UBO/Medical Treatment)

1 JUL 2013

Federal Receivables (UBO/Medical Treatment)

3 SEP 2013

Civilian Payroll 2 DEC 2013Financial Reporting 2 DEC 2013Funds Management (FBWT) 2 DEC 2013

Assessable Unit AssertionInterim Progress Milestones (90 Days, 50 %, 75 %)

Control Testing Time Period

Audit Readiness Process

FOR OFFICIAL USE ONLY5

Tasks Work Products Completed

Document Assessable Units1 Determine which key business processes are

Assessable Units• Process

Narrative

• Process Flowchart

Mar. 1st2 Document 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

5 Assess whether controls are effective in meeting control objectives

Assess Supporting Documentation6 Determine what supporting documents exist for each

transaction type • Key Supporting Document Matrix

Apr. 16th

7 Assess whether there are any unsupported transactions

Identify and Prioritize Deficiencies8 Create list of deficiencies for any objectives that are

not met or transactions that are not supported • Deficiencies Listing

Apr. 30th

9 Prioritize deficiency list based on audit criteria

Deficiency Types

FOR OFFICIAL USE ONLY6

Material Weakness – A deficiency, or combination of deficiencies, ininternal 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.

MWSDCD

Considerations For Deficiency Type

FOR OFFICIAL USE ONLY7

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 Standard Operating Procedure (SOP) is in place that meet financial reporting requirement

FOR OFFICIAL USE ONLY

Reimbursable Work Order - Grantor

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FOR OFFICIAL USE ONLY

SOPs: Your Map to Audit Readiness

The internal controls required for RWO-Grantor are in the Support Agreements: Receiver-Side SOP

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Follow the SOPs ALL THE TIME and TO THE LETTER!

SOP Questions/Feedback:BUMED-SOP@med.navy.mil

Control Objective Funding documents contain sufficient detail on goods/services

requested and have a valid, compliant and legal Support Agreement(DD-1144) on file

Impact on Audit Readiness Lack of DD-1144 would require more detail on funding documents Insufficient documentation to support goods/services requested

may indicate instances of fraud, waste, and abuseCommand Action Required Implement Support Agreements as required in accordance with

Support Agreements: Receiver-side Standard Operating Procedure (SOP) Section 1.7 and BUMEDINST 7050.1B

Include sufficient detail on goods or services on funding document

FOR OFFICIAL USE ONLY

KCO1: Support Agreement

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MWSDCD

FOR OFFICIAL USE ONLY

KCO2: Sufficient Budget Authority

Control Objective Commitments and obligations do not exceed budget

authorityImpact on Audit Readiness Non-compliance with applicable laws and regulations (i.e.

ADA) has the potential to result in a material audit finding There is no evidence to support funds checkCommand Action Required Perform funds check and commit funds in FASTDATA (or

STARS-FL if not on FASTDATA) Non-Research & Development Activities should use

FASTDATA

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MWSDCD

FOR OFFICIAL USE ONLY

KCO3: Timely Recording of Obligation

Control Objective All obligations are recorded in correct periodImpact on Audit Readiness Recording obligations in incorrect period could improperly

state “Obligations Incurred” and “Unobligated Balance” on SBR

No check to ensure obligations are posted in correct periodCommand Action Required BUMED will work on developing a corrective action to

ensure obligations are recorded in the correct period Verify correct FY Record obligation within 10 days of Performer acceptance of

funding document per DoD FMR Volume 3, Chapter 8

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MWSDCD

FOR OFFICIAL USE ONLY

KCO4: Accurate Recording of Obligation

Control Objective All obligations are recorded accuratelyImpact on Audit Readiness Inaccurate recording of obligations could improperly state

“Obligations Incurred” and “Unobligated Balance” on SBR No check to ensure obligations are posted accurately

(correct amount, Treasury account, vendor, line of accounting, or reporting entity)

Command Action Required Review posted obligations to ensure they are accurate and

recorded in correct period.

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MWSDCD

FOR OFFICIAL USE ONLY

KCO5: Valid ObligationsControl Objective Obligations are validImpact on Audit Readiness Recording invalid obligations could improperly state

“Obligations Incurred” and “Unobligated Balance” on SBRCommand Action Required Comptroller reviews funding document for accuracy (correct

FY, correct JON, funds available, proper use of funding) Comptroller signs (e.g. NAVCOMPT 2275, NAVCOMPT

2276A, DD-448)

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MWSDCD

FOR OFFICIAL USE ONLY

KCO6: Timely Recording of Accruals & A/P

Control Objective All accruals & A/P are recorded in the correct periodImpact on Audit Readiness Recording accruals & A/P could improperly state

“Obligations Incurred” and “Unpaid Obligations” on SBR IPAC posts A/P after disbursementCommand Action Required BUMED will work on developing a corrective action to

ensure payables are recorded in the correct period

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MWSDCD

FOR OFFICIAL USE ONLY

KCO7: Accurate Recording of Accruals & A/P

Control Objective All accruals & A/P are recorded accurately and invoices

are validImpact on Audit Readiness Recording accruals & A/P could improperly state

“Obligations Incurred” and “Unpaid Obligations” on SBR Lack of documentation to support posted A/PCommand Action Required BUMED will work on developing a corrective action to

ensure payables are recorded accurately and invoices are valid

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MWSDCD

FOR OFFICIAL USE ONLY

KCO8: Timely Recording of Disbursements

Control Objective All disbursements are recorded in the correct periodImpact on Audit Readiness Recording disbursements in the incorrect period could

improperly state “Gross Outlays” on SBR Lack of support for IPACs is a Material WeaknessCommand Action Required BUMED will work on developing a corrective action to

ensure disbursements are recorded in the correct period

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MWSDCD

FOR OFFICIAL USE ONLY

KCO9: Disbursements are Valid & Accurately

RecordedControl Objective All disbursements are valid and recorded accuratelyImpact on Audit Readiness Recording invalid or inaccurate disbursements could

improperly state “Gross Outlays” on SBR Lack of support for IPACs is a Material WeaknessCommand Action Required BUMED will work on developing a corrective action to

ensure disbursements are valid and recorded accurately

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MWSDCD

FOR OFFICIAL USE ONLY

KCO10: Review of Obligations and Accruals

Control Objective All obligations and accruals are validated and adjustedImpact on Audit Readiness Unadjusted obligations could improperly state “Obligations Incurred”

and “Unobligated Balance” on SBR Unadjusted accruals could improperly state “Obligations Incurred” and

“Unpaid Obligations” on SBRCommand Action Required Thorough annual review of each support agreement, and appropriate

closeout with accounting Thorough triannual review (ADL report) per Non-Daily Accounting

SOP, Section 4.1

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MWSDCD

FOR OFFICIAL USE ONLY

KCO10: Annual ReviewAnnual Review Checklist Required by Required by

BUMEDINST 7050.1B Required by Support

Agreement: Receiver-Side SOP, Sections 3.8 and 4.3

Tracked quarterly in Spotlight Metrics

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RWO-Grantor: Key Supporting Documentation

FOR OFFICIAL USE ONLY21

Execution Code

Description of Transaction

Key Supporting Documentation

915 Commitment (funding document prepared by Grantor)

DD 448, NAVCOMPT 2275, NAVCOMPT 2276-A

540 Obligation (Performer accepts funding document)

DD 448-2, NAVCOMPT 2275, NAVCOMPT 2276-A

510 A/P for delivered goods/services

none

610 Disbursement none

FOR OFFICIAL USE ONLY

Lack of Supporting Documentation for RWO-G

DisbursementsIssue Detail There is lack of supporting documentation for disbursements

related to reimbursable work orders. The disbursements are accounted for by DFAS, and BUMED has

little oversight of this process since the disbursement originates with the Performer agency.

Disbursements related to RWO-G were $36 Million in Q1 of FY12.

Impact on Audit Readiness Transactions can not be validated as accurate by an auditor if

they are not supported by documentation. With no proof of disbursements being recorded for the proper

amount, to the correct line of accounting, or in the proper period, BUMED has no support for these amounts reported on the financial statements.

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FOR OFFICIAL USE ONLY

Lack of Supporting Documentation for RWO-G

DisbursementsPath ForwardThe Reimbursable Work Orders Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Any potential solution must include:

A standardized key supporting document for disbursements related to reimbursable agreements that can be obtained by all activities executing such agreements.

Coordination with trading partners to ensure that documentation includes a valid, quantified measure of cost for services provided

Coordination with third party accounting service provider (DFAS) to ensure that any supporting documentation currently obtained can be provided to Navy Medicine upon receipt for the purpose of review and approval of disbursement amounts.

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FOR OFFICIAL USE ONLY

Reimbursable Work Order – Performer

(Non-Uniform Business Office)

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FOR OFFICIAL USE ONLY

KCO1: Timely Recording of Unfilled Orders

Control Objective All unfilled customer orders are recorded in the correct

periodImpact on Audit Readiness Recording unfilled orders in improper period could

improperly state “Change in Unfilled Customer Orders” or “Spending Authority from Offsetting Collections” on SBR

Lack of controls to ensure unfilled customer orders are recorded in the correct period

Command Action Required Ensure unfilled customer orders are recorded in the

correct period

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MWSDCD

FOR OFFICIAL USE ONLY

KCO2: Valid/Accurate Recording of Unfilled

OrdersControl Objective All unfilled customer orders are valid and recorded

accurately Impact on Audit Readiness Recording invalid or inaccurate unfilled orders could

improperly state “Change in Unfilled Customer Orders” on SBR

Lack of controls to ensure unfilled customer orders are valid and recorded accurately

Command Action Required Verify that LOA and amount on funding document matches

what posts to STARS-FL

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MWSDCD

FOR OFFICIAL USE ONLY

KCO3: Obligation of Reimbursable Authority

Control Objective Obligations incurred in performing customer work do not

exceed reimbursable authorityImpact on Audit Readiness Audit requires report on legal compliance (ADA) Lack of controls to ensure obligations do not exceed

reimbursable authorityCommand Action Required Comptroller reviews funding document for accuracy (correct

FY, correct JON, funds available, proper use of funding) Comptroller signs (e.g. NAVCOMPT 2275, NAVCOMPT 2276A,

DD 448-2) Ensure advance occurs prior to establishing reimbursable

authority or incurring costs for non-Federal entities27

MWSDCD

FOR OFFICIAL USE ONLY

KCO4: Timely Recording of Accruals and A/R

Control Objective All accruals and/or A/R are recorded in correct periodImpact on Audit Readiness Recording unfilled orders in incorrect period could

improperly state “Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR

A/R posted after collectionCommand Action Required BUMED will work on corrective action to address STARS-

FL posting logic

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MWSDCD

FOR OFFICIAL USE ONLY

KCO5: Valid/Accurate Recording of Accruals &

A/RControl Objective All accruals and A/R are valid and recorded accuratelyImpact on Audit Readiness Recording invalid or inaccurate accruals and/or A/R could

improperly state “Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR

Lack of documentation to ensure A/R is valid and posted accurately

Command Action Required BUMED will work to develop a corrective action to ensure

A/R is valid and accurate

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MWSDCD

FOR OFFICIAL USE ONLY

KCO6: Timely Recording of Collections

Control Objective All collections are recorded in the correct periodImpact on Audit Readiness Recording collections in incorrect period could improperly

state “Change in Uncollected Payments from Federal Source” and “Offsetting Collections” on SBR

Lack of controls and documentation to ensure collections are posted in the correct period

Command Action Required BUMED will work to develop a corrective action to ensure

collections are recorded in the correct period Non-Federal agreements – ensure advance occurs prior to

establishing reimbursable authority or incurring costs30

MWSDCD

FOR OFFICIAL USE ONLY

KCO7: Valid/Accurate Recording of Collections

Control Objective All collections are valid and recorded accuratelyImpact on Audit Readiness Recording invalid or inaccurate collections could

improperly state “Change in Uncollected Payments from Federal Source” and “Offsetting Collections” on SBR

Lack of controls and documentation to ensure collections are valid and recorded accurately

Command Action Required BUMED will work to develop a corrective action to ensure

collections are valid and recorded accurately

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MWSDCD

FOR OFFICIAL USE ONLY

KCO8: AdjustmentsControl Objective All expired orders, unfilled orders, uncollected A/R are

validatedand adjusted

Impact on Audit Readiness Unadjusted unfilled customer orders could improperly

state “Change in Unfilled Customer Orders” on SBR Unadjusted invalid receivables could improperly state

“Change in Unfilled Customer Orders” and “Change in Uncollected Payments from Federal Source” on SBR

Command Action Required Thorough annual review of each support agreement, and

appropriate closeout with accounting

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MWSDCD

FOR OFFICIAL USE ONLY

KCO8: Annual ReviewAnnual Review Checklist Required by BUMEDINST

7050.1B Tracked quarterly in

Spotlight Metrics

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RWO-Performer: Key Supporting Documentation

Execution Code

Description of Transaction Key Supporting Documentation

121 Establish reimbursable authority DD 448-2, NAVCOMPT 2275, NAVCOMPT 2276-A

201 Billing none202 Collection none

FOR OFFICIAL USE ONLY34

FEDERAL vs. NON-FEDERALNon-Federal: Advance (202) precedes Reimb Authority (121)Federal: Reimb Authority (121) precedes Collection (202)

For Non-Federal Customers: Do Not Record Reimbursable Authority in Excess of Advance!

FOR OFFICIAL USE ONLY

Lack of Supporting Documentation for RWO-P

A/R & CollectionsIssue Detail No Key Supporting Documentation for Execution Code

201(Receivables) and 202 (Collections) - Navy Medicine does not receive/retain any supporting documentation for the receivables and collections related to services provided under reimbursable agreements.

Accounting is done by DFAS, and BUMED has little oversight of this process.

Receivables related to RWO-P were $17.3 Million in Q1 of FY12. Impact on Audit Readiness Transactions can not be validated as accurate by an auditor if

they are not supported by documentation. With no proof of receivables & collections being recorded for the

proper amount, to the correct line of accounting, or in the proper period, BUMED has no support for these amounts reported on the financial statements.

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FOR OFFICIAL USE ONLY

Lack of Supporting Documentation for RWO-P

A/R & CollectionsPath ForwardThe Reimbursable Work Orders Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Any potential solution must include:

A standardized key supporting document for receivables & collections related to reimbursable agreements that can be obtained by all activities executing such agreements.

Coordination with trading partners to ensure that documentation includes a valid, quantified measure of cost for services provided

Coordination with third party accounting service provider (DFAS) to ensure that any supporting documentation currently obtained can be provided to Navy Medicine upon receipt for the purpose of review and approval of billing & collection amounts.

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FOR OFFICIAL USE ONLY

Conclusion

Actions You Can Take at Your Command Fully implement Support Agreement: Receiver

Side SOP Review posted obligations and unfilled customer

orders to ensure they are posted accurately Retain all Key Supporting Documentation so that

it is ready for audit Use MICP/CLT/Command Evaluation program to

candidly assess RWO processes & fix problems

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The key to audit readiness is in YOUR hands!

FOR OFFICIAL USE ONLY

Questions?

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