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Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Reimbursable Work Orders (RWO): Path to Audit Readiness June 5 th.

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Presentation on theme: "Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Reimbursable Work Orders (RWO): Path to Audit Readiness June 5 th."— Presentation transcript:

1 Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Reimbursable Work Orders (RWO): Path to Audit Readiness June 5 th – 6 th, 2012

2 FOR OFFICIAL USE ONLY Audit Readiness Context 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. 2

3 RWO Scope/Definition FOR OFFICIAL USE ONLY 3 DefinitionReimbursable 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/TeamDavid Howell Mike Brandt Eric Egger Mel Becker Assessable Unit SupportBhavin Patel – Chaz Swingle – Q1 FY12 ObligationsRWO-Grantor: $109 Million Q1 FY12 Unfilled Customer OrdersRWO-Performer: $44.2 Million

4 Audit Readiness Timeline FOR OFFICIAL USE ONLY 4 FY12FY13FY14 Assessable Units – Wave 2 Max Assertion Date Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 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 2013 Assessable Unit Assertion Interim Progress Milestones (90 Days, 50 %, 75 %) Control Testing Time Period

5 Audit Readiness Process FOR OFFICIAL USE ONLY 5 TasksWork ProductsCompleted Document Assessable Units 1 Determine which key business processes are Assessable Units Process Narrative Process Flowchart Mar. 1st 2 Document Assessable Units through interviews and observation Assess Internal Controls 3 Determine control objectives for each Assessable Unit Control AssessmentMar. 1st 4 Highlight internal controls in process documentation 5 Assess whether controls are effective in meeting control objectives Assess Supporting Documentation 6 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 Deficiencies 8 Create 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

6 Deficiency Types FOR OFFICIAL USE ONLY 6 Material Weakness – A deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entitys 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. MW SD CD

7 Considerations For Deficiency Type FOR OFFICIAL USE ONLY 7 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

8 FOR OFFICIAL USE ONLY Reimbursable Work Order - Grantor 8

9 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 9 Follow the SOPs ALL THE TIME and TO THE LETTER! SOP Questions/Feedback:

10 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 abuse Command Action Required Implement Support Agreements as required in accordance with Support Agreements: Receiver-side Standard Operating Procedure (SOP) Section 1.7 and BUMEDINST B Include sufficient detail on goods or services on funding document FOR OFFICIAL USE ONLY KCO1: Support Agreement 10 MW SD CD

11 FOR OFFICIAL USE ONLY KCO2: Sufficient Budget Authority Control Objective Commitments and obligations do not exceed budget authority Impact 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 check Command Action Required Perform funds check and commit funds in FASTDATA (or STARS-FL if not on FASTDATA) Non-Research & Development Activities should use FASTDATA 11 MW SD CD

12 FOR OFFICIAL USE ONLY KCO3: Timely Recording of Obligation Control Objective All obligations are recorded in correct period Impact 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 period Command 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 12 MW SD CD

13 FOR OFFICIAL USE ONLY KCO4: Accurate Recording of Obligation Control Objective All obligations are recorded accurately Impact 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. 13 MW SD CD

14 FOR OFFICIAL USE ONLY KCO5: Valid Obligations Control Objective Obligations are valid Impact on Audit Readiness Recording invalid obligations could improperly state Obligations Incurred and Unobligated Balance on SBR Command 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) 14 MW SD CD

15 FOR OFFICIAL USE ONLY KCO6: Timely Recording of Accruals & A/P Control Objective All accruals & A/P are recorded in the correct period Impact on Audit Readiness Recording accruals & A/P could improperly state Obligations Incurred and Unpaid Obligations on SBR IPAC posts A/P after disbursement Command Action Required BUMED will work on developing a corrective action to ensure payables are recorded in the correct period 15 MW SD CD

16 FOR OFFICIAL USE ONLY KCO7: Accurate Recording of Accruals & A/P Control Objective All accruals & A/P are recorded accurately and invoices are valid Impact on Audit Readiness Recording accruals & A/P could improperly state Obligations Incurred and Unpaid Obligations on SBR Lack of documentation to support posted A/P Command Action Required BUMED will work on developing a corrective action to ensure payables are recorded accurately and invoices are valid 16 MW SD CD

17 FOR OFFICIAL USE ONLY KCO8: Timely Recording of Disbursements Control Objective All disbursements are recorded in the correct period Impact on Audit Readiness Recording disbursements in the incorrect period could improperly state Gross Outlays on SBR Lack of support for IPACs is a Material Weakness Command Action Required BUMED will work on developing a corrective action to ensure disbursements are recorded in the correct period 17 MW SD CD

18 FOR OFFICIAL USE ONLY KCO9: Disbursements are Valid & Accurately Recorded Control Objective All disbursements are valid and recorded accurately Impact on Audit Readiness Recording invalid or inaccurate disbursements could improperly state Gross Outlays on SBR Lack of support for IPACs is a Material Weakness Command Action Required BUMED will work on developing a corrective action to ensure disbursements are valid and recorded accurately 18 MW SD CD

19 FOR OFFICIAL USE ONLY KCO10: Review of Obligations and Accruals Control Objective All obligations and accruals are validated and adjusted Impact 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 SBR Command 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 MW SD CD

20 FOR OFFICIAL USE ONLY KCO10: Annual Review Annual Review Checklist Required by Required by BUMEDINST B Required by Support Agreement: Receiver-Side SOP, Sections 3.8 and 4.3 Tracked quarterly in Spotlight Metrics 20

21 RWO-Grantor: Key Supporting Documentation FOR OFFICIAL USE ONLY 21 Execution Code Description of TransactionKey Supporting Documentation 915Commitment (funding document prepared by Grantor) DD 448, NAVCOMPT 2275, NAVCOMPT 2276-A 540Obligation (Performer accepts funding document) DD 448-2, NAVCOMPT 2275, NAVCOMPT 2276-A 510A/P for delivered goods/servicesnone 610Disbursementnone

22 FOR OFFICIAL USE ONLY Lack of Supporting Documentation for RWO-G Disbursements Issue 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. 22

23 FOR OFFICIAL USE ONLY Lack of Supporting Documentation for RWO-G Disbursements Path Forward The 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. 23

24 FOR OFFICIAL USE ONLY Reimbursable Work Order – Performer (Non-Uniform Business Office) 24

25 FOR OFFICIAL USE ONLY KCO1: Timely Recording of Unfilled Orders Control Objective All unfilled customer orders are recorded in the correct period Impact 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 25 MW SD CD

26 FOR OFFICIAL USE ONLY KCO2: Valid/Accurate Recording of Unfilled Orders Control 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 26 MW SD CD

27 FOR OFFICIAL USE ONLY KCO3: Obligation of Reimbursable Authority Control Objective Obligations incurred in performing customer work do not exceed reimbursable authority Impact on Audit Readiness Audit requires report on legal compliance (ADA) Lack of controls to ensure obligations do not exceed reimbursable authority Command 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 entities 27 MW SD CD

28 FOR OFFICIAL USE ONLY KCO4: Timely Recording of Accruals and A/R Control Objective All accruals and/or A/R are recorded in correct period Impact 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 collection Command Action Required BUMED will work on corrective action to address STARS-FL posting logic 28 MW SD CD

29 FOR OFFICIAL USE ONLY KCO5: Valid/Accurate Recording of Accruals & A/R Control Objective All accruals and A/R are valid and recorded accurately Impact 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 29 MW SD CD

30 FOR OFFICIAL USE ONLY KCO6: Timely Recording of Collections Control Objective All collections are recorded in the correct period Impact 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 costs 30 MW SD CD

31 FOR OFFICIAL USE ONLY KCO7: Valid/Accurate Recording of Collections Control Objective All collections are valid and recorded accurately Impact 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 31 MW SD CD

32 FOR OFFICIAL USE ONLY KCO8: Adjustments Control Objective All expired orders, unfilled orders, uncollected A/R are validated and 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 32 MW SD CD

33 FOR OFFICIAL USE ONLY KCO8: Annual Review Annual Review Checklist Required by BUMEDINST B Tracked quarterly in Spotlight Metrics 33

34 RWO-Performer: Key Supporting Documentation Execution Code Description of TransactionKey Supporting Documentation 121Establish reimbursable authorityDD 448-2, NAVCOMPT 2275, NAVCOMPT A 201Billingnone 202Collectionnone FOR OFFICIAL USE ONLY 34 FEDERAL vs. NON-FEDERAL Non-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!

35 FOR OFFICIAL USE ONLY Lack of Supporting Documentation for RWO-P A/R & Collections Issue 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. 35

36 FOR OFFICIAL USE ONLY Lack of Supporting Documentation for RWO-P A/R & Collections Path Forward The 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. 36

37 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 37 The key to audit readiness is in YOUR hands!

38 FOR OFFICIAL USE ONLY Questions? 38


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