1. DEFINE AUDIT READINESS
SECTION I. ADMINISTRATIVE DATA
All Course Masters/POIs Including This Lesson: NA
Task(s) Taught(*) or Supported: NA
Reinforced Task(s): NA
Knowledge: NA
Skill: NA
Administrative/ Academic Hours: 50 mins
Instructor Action Hours: 60 mins
Test Lesson(s): NA
Prerequisite Lesson(s): NA
Training Material Classification: Security Level: This course/lesson will present information that has a Security Classification of: U - Unclassified.
Foreign Disclosure Restrictions: FD1. This training product has been reviewed by the training developers in coordination with the FMB/SSI/Fort
Jackson, SC foreign disclosure officer. This training product can be used to instruct international military
students from all approved countries without restrictions.
References: Government Auditing Standards (2011 Revision).
Student Study Assignment: All students must review training schedule and scan for all reading assignments and all regulations in advance.
Instructor Requirements: Facilitator must review lesson plan material and associated multi-media one day prior to the actual date of instruction.
Facilitator should be prepared to add relevant experience to assist in learning.
Support Personnel Requirements: Assistant Instructors: All lesson plans material must be reviewed one day prior instruction. Assistant Instructors will
be alert to the needs of the learners and assist as necessary. Must be prepared to take over class in the event of an
interruption or emergency.
Additional Support Personnel Requirements: None
Equipment Required for Instruction: Standard FMS Classroom Equipment
Materials Required:
Instructor Materials:
Each primary instructor should possess a lesson plan, slide deck, course handouts, and practical exercise, All required
references and technical manuals will be provided by the Schoolhouse.
Student Materials:
Students should possess standard classroom supplies, course handouts, practical exercises,. all required references
and technical manuals will be provided by the Schoolhouse.
Classroom, Training Area, and Range Requirements: Classroom, Multipurpose, 1200 Square Feet, 30 Students
Ammunition Requirements: None
Instructional Guidance/ Conduct of Lesson NOTE: Before presenting this lesson, instructors must thoroughly prepare by studying this
lesson and identified reference material.
Proponent Lesson Plan Approvals: Reid Bonig, Approver, 15 Jan 2019
Section II. Introduction: Today we are going to discuss the S8 Roles and Responsibilities.
Method of Instruction: Conference/Discussion
Instructor to Student Ratio: 1:16
Time of Instruction: 5 mins
Media: Small or Large Group Instruction
Method of Instruction: Discussion (Small or Large Group)
Mode of Delivery: Resident Instruction
Instr Type (I:S Ratio): Military - ICH (1:25) (Every instructor must meet the qualification standards
established in AR 350-1, AR ,TR , TR and the proponent school instructor certification program.)
Time of Instruction: 5 mins
Define PBAC – Training Development Directorate, SSI
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2. TERMINAL LEARNING OBJECTIVE
Action: Define Audit Readiness
Conditions: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, and discussion
Standard: Define audit readiness with at least 80% accuracy by communicating the purpose and elements of a successful audit.
Show Slide #2: Terminal Learning Objective
Action: Define Audit Readiness
Conditions: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, and discussion
Standard: Define audit readiness with at least 80% accuracy by communicating the purpose and elements of a successful audit.
Facilitator’s Note: Throughout this lesson, solicit from learners the challenges they experienced in the current operational environment (OE) and what they did to resolve them. Encourage learners to apply at least 1 of the 8 critical variables: physical environment, political stability of the state, sociological demographics, infrastructure, military capabilities, information, time, and economics.
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 DELIBERATE RISK ASSESSMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Risk Assessment Level: Low - Electrical Shock, Fire, Slippery Floors, Physical Injure/Strain, Tripping Tight
Spaces in Classroom, and Influenza Assessment: Low Controls: Primary Facilitator (PF) will ensure: All electrical cords are properly stored under desks, liquid containers have lids on them and all spills are immediately cleaned and mopped and allowed to completely dry before allowing learners/personnel to walk on them. All chairs are ergonomically designed, adjust to individual preference and that all learners are awake and paying attention in class. All cables/cords are properly plugged in, sheathed, and secured along tables, walls, and ceilings. No damaged or frayed cords/cables will be used. PI will brief proper hand washing techniques, the use of hand sanitizer, and evacuation procedures. All trash will be removed daily. Leader Actions: Detailed in-brief covering all aspects of safety to include daily classroom inspections, spills cleaned immediately, emergency exit plans, leader checks, hygiene procedures, and weekly safety briefings.
Environmental Considerations: NOTE: Instructor should conduct a risk assessment to include environmental considerations IAW the current environmental considerations publication, and ensure students are briefed on hazards and control measures. Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to ATP Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
Evaluation: Learners will take the FMOB exam at the end of week _______; the exam includes audit readiness topics. Learners must score 80% or higher and International officers must score 70% or higher. Also, Learners will be assessed using “Go” or “No Go” on their knowledge and execution of audit readiness activities during the Capstone Exercise.
Instructional Lead-In: To maintain the momentum generated by partial audits in FY 17 and full audit in FY18, Financial Managers must continue to aggressively develop and maintain a culture that expects auditable records at every Army level. Having an understanding of what an audit entails and how to prepare for one are pivotal to reach the end state: a clean audit opinion. Audit Readiness is everyone’s responsibility and as such, we must be fully committed to ensure compliance and Congressionally mandated auditability requirements to support achievement of Army priorities.
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3. FINANCIAL MANAGEMENT SCHOOL
WHAT IS AN AUDIT?
Show Slide #3:
To understand the basis of Audit Readiness, we must understand what an Audit is… According to the Government Accountability Office (GAO) in its Government Auditing Standards 2011 Revision, states “Financial audits provide an independent assessment of whether an entity’s reported financial information (e.g., financial condition, results, and use of resources) are presented fairly in accordance with recognized criteria. Financial audits performed in accordance with Generally Accepted Government Accounting Standards (GAGAS) include financial statement audits and other related financial audits.
The independent assessment is normally conducted by an auditor (KPMG in FY18) with the goal of providing an audit opinion on the entity’s financial statements.
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4. WHY IS THE ARMY UNDER AUDIT?
It’s the Law
Sec of the National Defense Authorization Act (NDAA) for FY2010 mandates that all military services under the Department of Defense develop and maintain a plan that ensures all financial statements are validated and ready for audit by 30 September 2017
Taxpayer Accountability
Congress wants to make sure that the U.S. Army can be
trusted with taxpayer dollars
Show Slide #4:
Instructor's Note: Sec (Audit readiness of financial statements of the Defense Department) of the FY 2010 NDAA, requires all Services under the Department of Defense to develop a Financial improvement audit readiness plan.
The plan shall—
(A)describe specific actions to be taken and the costs associated with—
(i) Correcting the financial management deficiencies that impair the ability of the Department of Defense to prepare timely, reliable, and complete financial management information; and
(ii) Ensuring the financial statements of the Department of Defense are validated as ready for audit by not later than September 30, 2017;
B) Systematically process and control improvements and business systems modernization;
(C) Prioritize—
(i) Improving the budgetary information of the Department of Defense, in order to achieve an unmodified audit opinion on the Department’s statements of budgetary resources; and
(ii) As a secondary goal, improving the accuracy and reliability of management information on the Department’s mission-critical assets (military and general equipment, real property, inventory, and operating materials and supplies) and validating its accuracy through existence and completeness audits; and
(D) Include interim goals—
(i) The objective of ensuring that the financial statement of each of the Department of the Army, the Department of the Navy, the Department of the Air Force, and the Defense Logistics Agency is validated as ready for audit:
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5. FINANCIAL MANAGEMENT SCHOOL
AUDIT OPINIONS
Instructor's Note: When performing a financial statement audit, the auditor can express one of four potential results on the financial statements.
1. unmodified opinion
2. modified opinion
3. adverse opinion
4. disclaimer of opinion
An unmodified opinion, sometimes referred to as a clean opinion, is expressed when the auditor concludes that management has presented the financial statements fairly and in accordance with Generally Accepted Accounting Principles.
A modified opinion is expressed when the auditor concludes that there are misstatements in the financial statements which are material to the financial statement but are not significant to the overall presentation of the financial statements.
An adverse opinion is expressed when the auditor concludes that misstatements in the financial statements are both material and significant to the financial statements. Neither the DoD nor any DoD Component has received an adverse opinion since the DoD OIG has been auditing or overseeing the audits of the DoD.
A disclaimer of opinion is expressed when the auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion. This opinion is the most common opinion for the DoD and the DoD Component financial statements.
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6. FINANCIAL MANAGEMENT SCHOOL
2018 AUDITOR’S REPORT
Show Slide #6:
Instructor's Note: In FY 2018, the DoD OIG issued a disclaimer of opinion on the Agency‑Wide Basic Financial Statements because multiple DoD Components that account for the majority of the balances consolidated into the Agency‑Wide Basic Financial Statements received disclaimers of opinion.8 This included the Department of the Army General Fund, Department of the Navy General Fund, Department of the Air Force General Fund, U.S. Marine Corps General Fund, Department of the Army Working Capital Fund, Department of the Navy Working Capital Fund, and Department of the Air Force Working Capital Fund. These DoD Components received disclaimers of opinion because they continued to have unresolved accounting issues and material weaknesses that prevented them from providing evidence to support the balances presented on the financial statements.
Fiscal Year 2018 United States Army Annual Financial Report
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7. WHAT IS A SUCCESSFUL AUDIT?
Show Slide 7: What is a successful audit?
Instructor's Note: Audit success is a mixture of effective internal controls and clean business processes, supported by complete documentation which reinforces taxpayer confidence in the Army’s good stewardship of resources.
Financial Managers must ensure their shop/section/division…etc has an active Manager’s Internal Control Program (MICP) backed by comprehensive SOPs that clearly outline business processes. The goal is to standardize procedures to enhance audit readiness. It is also our responsibility to verify that every transaction has the necessary supporting documentation as mandated by law.
The biggest hurdle for the Army as stated in the KPMG report was “inadequate processes, controls, and records to support transactions and account balances” Because of the aforementioned, the United States Army Financial Management Command (USAFMCOM) is establishing Business Process Standardization (BPS) to ensure all units across the Army follow the same processes to minimize error and auditor confusion.
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8. WHERE DOES AUDIT SUCCESS START?
Show Slide #8: Where Does Audit Success Start?
Instructor's Note: There is a misconception across the Army on who is responsible for audit readiness. A large majority believe financial managers are solely responsible for audit readiness, when in reality, audit readiness is affected by every service member regardless of rank.
Personnel records, too, have supporting documentation (as pay affects financial statements) that should be uploaded to the personnel system (i.e IPERMS). On a yearly basis or any time there is a change in the service member status (PCS-BAH, marriage/divorce, promotion, deployment, birth of a child) supporting documentation must be provided to HR and uploaded to the personnel system. Does it always happen? Absolutely not, and that is why one must monitor the personnel system to verify supporting documentation is uploaded. At a minimum, one should have promotion orders, marriage certificate, birth certificates of dependents, and deployment orders. If you don’t have these or you are missing any of these documents, see your personnel clerk for assistance.
Additionally, certain MOSs (HR, finance, logistics, engineers) have more skin in the game, and for obvious reasons. Building relationships and maintaining positive communication with the latter mentioned enhances our ability to furnish necessary documentation during an audit. It is imperative to understand each other’s role in an audit…bottom line, it is everyone’s responsibility.
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9. FINANCIAL MANAGEMENT SCHOOL
KEY INTERNAL CONTROLS
Show Slide 9: Key Internal Controls
Instructor's Note: The slide shows some key internal controls that have proven to be effective in enhancing auditability. On the other hand, lack of these controls will severely affect and will have an impact in audit readiness. A deficiency in Internal Control exists when the design or operation of a control does not allow management or employees to prevent, or detect and correct, mistakes on a timely basis.
The FY 2018 KPMG report provided the following recommendations:
Compile supporting documentation for historical transactions to support that transactions exist and were recorded completely and accurately.
Design, document, and implement procedures to maintain evidential matter.
Provide training to key personnel to validate policies are followed.
Enforce implementation of inventory count policies and provide periodic refresher training on executing inventory counts.
Establish segregation of duties, configuration management, and/or contingency planning controls.
Develop and implement policies and procedures to track and minimize manual journal entries processed in legacy systems (SF community…).
Monitor and verify manual journal entries are supported adequately.
If key Internal Controls are not effective, it could have a negative impact on general ledger account balances and financial statements line items.
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10. KEY SUPPORTING DOCUMENTATION
Common Key Supporting Documentation
Contracts and contract modifications
Delegations of Authority
Military Interdepartmental Purchase Requests (MIPR)
Memorandum of Understanding (MOU)
Memorandum of Agreement (MOA)
Goods Receipts
Invoices
Property, Plant & Equipment/Inventory/Liabilities
Delegation of Authority documents
Assumption of Command Documents
Evidence of Receipt (e.g. DD 250)
DD A: Issue/Release/ Receipt Document
DD 1354: Transfer and Acceptance of Real Property
DD 3161: Request for Issue or Turn-in
Show Slide #10: Key Supporting Documentation
Instructor's Note: Supporting documentation verifies that each transaction is recorded and backed up by hard evidence.
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11. RESPONDING TO AUDITOR REQUESTS
Be confident in your business processes
Demonstrate fiscal responsibility
Reflect understanding and compliance with policies and standard operating procedures
Make a judgement call—think like an auditor
Provide a memo if documentation is unavailable
Only provide documentation that answers the request
Show Slide #11: Responding to Auditor’s Requests
The points highlighted on the screen depict good practices when responding auditor requests. Auditor requests will normally come to you from your higher headquarters. You are time-constrained (72hrs) to retrieve all supporting documentation as per the instructions in the audit sample. Understanding the financial system of record and the elements of a line of accounting are critical to provide the correct supporting documentation. Moreover, each organization should have audit readiness POCs (primary and alternate; regardless of location or type of operating environment i.e. deployment) to maximize use of time and prevent missing deadlines as these result in an automatic failed sample.
A comprehensive audit readiness SOP can assist your team to a 100% passing rate. However, it is the internal control program that will ensure your business processes are in compliance in accordance with the law.
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12. STRONG INTERNAL CONTROLS WILL HELP ARMY PASS AUDIT
Show Slide #12: Strong Internal Controls will help Army Pass Audit
Instructor's Note: Emphasize the importance of a strong internal control program as the basis for a successful audit. Moreover, ensure students understand that a standardize business process is key, so long as this process is in-line with the law. It must be updated regularly and changes must be documented and disseminated to the lowest level. Briefly talk about inspections/staff assistance visits…make them tough and provide commanders with an accurate assessment of their organization. If leaders are unaware of material weaknesses in their organization, how can they establish policy to fix it?
Auditors don’t understand Army processes like you do
The Army cannot wait for auditors to make judgements. Our Army subject matter experts must use in-house evaluations of Internal Controls and find solutions that work within the Army framework.
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13. FINANCIAL MANAGEMENT SCHOOL
CHECK ON LEARNING
Give three examples of Key Control Documentation.
What does the KPMG report provide?
Why audit reviews are important to the government?
Show Slide 13: Check on Learning
Q. Give three examples of Key Control Documentation
A. Common supporting documentation include:
- Contracts and contract modifications
- Delegations of Authority
- Military Interdepartmental Purchase Requests (MIPR)
- Memorandum of Understanding (MOU)
- Memorandum of Agreement (MOA)
- Goods Receipts
- Invoices
In property, plant and equipment/inventory/liabilities supporting documentation include:
- Delegation of Authority documents
- Assumption of Command Documents
- Evidence of Receipt (e.g. DD 250)
- DD A: Issue/Release/ Receipt Document
- DD 1354: Transfer and Acceptance of Real Property
- DD 3161: Request for Issue or Turn-in
Q. What does the KPMG report provide?
A. The FY 2018 KPMG report provided the following recommendations: Compile supporting documentation for historical transactions to support that transactions exist and were recorded completely and accurately. Design, document, and implement procedures to maintain evidential matter. Provide training to key personnel to validate policies are followed. Enforce implementation of inventory count policies and provide periodic refresher training on executing inventory counts. Establish segregation of duties, configuration management, and/or contingency planning controls. Develop and implement policies and procedures to track and minimize manual journal entries processed in legacy systems (SF community…). Monitor and verify manual journal entries are supported adequately.
Q. Why audit reviews are important to the government?
A: The students can give their own opinion within these guidelines:
- Audit success is a mixture of effective internal controls and clean business processes, supported by complete documentation which reinforces taxpayer confidence in the Army’s good stewardship of resources. Financial Managers must ensure their shop/section/division…etc has an active Manager’s Internal Control Program (MICP) backed by comprehensive SOPs that clearly outline business processes. The goal is to standardize procedures to enhance audit readiness. It is also our responsibility to verify that every transaction has the necessary supporting documentation as mandated by law. The biggest hurdle for the Army as stated in the KPMG report was “inadequate processes, controls, and records to support transactions and account balances” Because of the aforementioned, the United States Army Financial Management Command (USAFMCOM) is establishing Business Process Standardization (BPS) to ensure all units across the Army
follow the same processes to minimize error and auditor confusion.
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14. FINANCIAL MANAGEMENT SCHOOL
SUMMARY
During this lesson we defined audit readiness, options, and key control measures.
Show Slide 14: Summary
Facilitator at this time, divide students into groups and have them discuss the most important take away from this lesson. Then have one student from each group explain their take aways to
the rest of the class. Facilitate a discussion on each groups answer.
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15. TERMINAL LEARNING OBJECTIVE
Action: Define Audit Readiness
Conditions: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, and discussion
Standard: Define audit readiness with at least 80% accuracy by communicating the purpose and elements of a successful audit.
Show Slide #15: Terminal Learning Objective
Restate the TLO.
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