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

2. Audit Readiness Context Purpose Outcome
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.
FOR OFFICIAL USE ONLY

3. RWO Scope/Definition 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 Howell
Mike Brandt
Eric Egger
Mel Becker
Assessable Unit Support
Bhavin Patel –
Chaz Swingle –
Q1 FY12 Obligations
RWO-Grantor: $109 Million
Q1 FY12 Unfilled Customer Orders
RWO-Performer: $44.2 Million
FOR OFFICIAL USE ONLY

4. Audit Readiness Timeline
FY12
FY13
FY14
Assessable Units – Wave 2
Max Assertion Date Q1 Q2 Q3 Q4
Travel
4 SEP 2012
Consumables
3 DEC 2012
Reimbursable Work Orders – Grantor
Reimbursable Work Orders – Performer (Non-UBO)
1 APR 2013
Military Payroll (including RPN)
Contract Administration
1 JUL 2013
Non-Federal Receivables (UBO/Medical Treatment)
Federal Receivables (UBO/Medical Treatment)
3 SEP 2013
Civilian Payroll
2 DEC 2013
Financial Reporting
Funds Management (FBWT)
Control Testing Time Period
Interim Progress Milestones (90 Days, 50 %, 75 %)
Assessable Unit Assertion
FOR OFFICIAL USE ONLY

5. Audit Readiness Process
Tasks
Work Products
Completed
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 Assessment 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 Listing
Apr. 30th 9
Prioritize deficiency list based on audit criteria
FOR OFFICIAL USE ONLY

6. 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. MW SD CD
FOR OFFICIAL USE ONLY

7. 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 Standard Operating Procedure (SOP) is in place that meet financial reporting requirement
FOR OFFICIAL USE ONLY

8. Reimbursable Work Order - Grantor
FOR OFFICIAL USE ONLY

9. SOPs: Your Map to Audit Readiness
The internal controls required for RWO-Grantor are in the Support Agreements: Receiver-Side SOP
Follow the SOPs ALL THE TIME and TO THE LETTER!
SOP Questions/Feedback:
FOR OFFICIAL USE ONLY

10. KCO1: Support Agreement
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 MW SD CD
Is there clarity on when SAs are required? Table covers when SAs are required in Section 1.7, Figure
FOR OFFICIAL USE ONLY

11. 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 MW SD CD
Removed
FOR OFFICIAL USE ONLY

12. 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 MW SD CD
DoD FMR Vol 3, Chap 8 requires obligations to be recorded within 10 days of acceptance.
FOR OFFICIAL USE ONLY

13. 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. MW SD CD
FOR OFFICIAL USE ONLY

14. 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) MW SD CD
SA SOP, Sections supports KCO5.
FOR OFFICIAL USE ONLY

15. 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 MW SD CD
FOR OFFICIAL USE ONLY

16. 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 MW SD CD
FOR OFFICIAL USE ONLY

17. 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 MW SD CD
FOR OFFICIAL USE ONLY

18. 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 MW SD CD
FOR OFFICIAL USE ONLY

19. 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 4.1 MW SD CD
SA SOP, Sections 3.8, 4.3, and 7.10 give further guidance on reviewing and closing out SAs. Non-Accounting SOP, Section 4.1 also gives further guidance on the triannual review.
FOR OFFICIAL USE ONLY

20. 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
FOR OFFICIAL USE ONLY

21. RWO-Grantor: Key Supporting Documentation
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
FOR OFFICIAL USE ONLY

22. 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.
FOR OFFICIAL USE ONLY

23. 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.
FOR OFFICIAL USE ONLY

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

25. 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 MW SD CD
FOR OFFICIAL USE ONLY

26. 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 MW SD CD
FOR OFFICIAL USE ONLY

27. 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 MW SD CD
FOR OFFICIAL USE ONLY

28. 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 MW SD CD
FOR OFFICIAL USE ONLY

29. 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 MW SD CD
Lack of supporting documentation causes this to be a material weakness.
FOR OFFICIAL USE ONLY

30. 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 MW SD CD
Lack of supporting documentation causes this to be a material weakness.
FOR OFFICIAL USE ONLY

31. 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 MW SD CD
Lack of supporting documentation causes this to be a material weakness.
FOR OFFICIAL USE ONLY

32. KCO8: Adjustments Control Objective Impact on Audit Readiness
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 MW SD CD
Support Agreements: Receiver-side SOP, Sect. 3.8 provides details on SA annual review.
FOR OFFICIAL USE ONLY

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

34. 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
none
202
Collection
FEDERAL vs. NON-FEDERAL
Non-Federal: Advance (202) precedes Reimb Authority (121)
Federal: Reimb Authority (121) precedes Collection (202)
For Non-Federal customers, Activities should only record reimbursable authority AFTER advance of funds occur, and that reimbursable authority should not exceed the amount advanced. For Non-Federal customers, recording reimbursable authority in excess or prior to receiving an advance is a SIGNIFICANT DEFICIENCY. It has been identified as a Significant Deficiency as there is a potential for a material misstatement to the financial statements.
For Non-Federal Customers:
Do Not Record Reimbursable Authority in Excess of Advance!
FOR OFFICIAL USE ONLY

35. 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.
FOR OFFICIAL USE ONLY

36. 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.
FOR OFFICIAL USE ONLY

37. 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
Fully implementing Support Agreement: Receiver-side SOP ties to establishing SAs when required, performing the annual review of SAs, performing the triannual review, etc.
The key to audit readiness is in YOUR hands!
FOR OFFICIAL USE ONLY

38. Questions?
FOR OFFICIAL USE ONLY