1. “Going to Audit” Presented To: Navy/Marine Corps Service Day Workshop American Society of Military Comptrollers (ASMC) Professional Development Institute (PDI) Mr. Marc Brito 27 May 2009

2. 2 Agenda  Audit: The Journey  Know your Environment  Test, Remediate…….Test, Remediate……Assert  Validate (OIG & OSD)  Education & Communication  Organization Infrastructure  Preparation: Top to Bottom  Audit: Journey’s End  Sustainment-to-Audit

3. 3 Audit: “The Journey” – What is it? Management achieving Reasonable Assurance that:  Events and transactions are Fairly Presented on the financial statements and in the notes to those statements,  Internal control policies, procedures and the environment are Sufficiently Reliable,  Direct, or  Compensating, and  Compliance with applicable Laws and Regulations is Transparent and Verifiable. (OMB Bulletin No. 07-04, as amended)

4. 4 Going to Audit: It’s All About the “Know”  Know your business............Know your financial environment  Processes & Systems  Financial Statement Presentation  Internal Controls  Laws & Regulations  Know how your business events become your financial transactions  Know what documents support your events and transactions  Know how your transactions are recorded in your general ledger  Know which transaction posts to which financial statement line  Know how to go from “accumulate to record to report”

5. 5 Know your financial environment: What does this mean? Financial Environment is logically divided into auditable components to achieve incremental audit readiness recognizing: Current Operations (annual budget) Statement of Budgetary Resources Historical Costs (Capital Assets) Balance Sheet Link Events and transactions (source documentation) to General Ledger (financial statements) Consistent and verifiable reconciliation of budget with annual obligations and expenditures (Remember the importance of the FBWT reconciliation process?)

6. 6 Know your Events and Transactions Forward or Backward Financial Statements Financial Statement Line Items Reporting System General Ledgers Core Accounting System Feeder Systems Financial Events Business Events Transactions Step One - Understand your financial environment from the event & transaction through the General Ledger to Financial Statement Line Step Two - Evaluate, Test and Validate consistently in-house and through third party concurrence (OIG & OSD) Process Flows

7. 7 Test to Assert: Financial Statement Assertions  Existence – Assets, Liabilities and Equity exist  Occurrence – Transactions and events that have been recorded have occurred and pertain to the entity.  Rights and Obligations – The entity holds or controls the rights to assets, and the liabilities are the obligations of the entity.  Valuation and Presentation – Assets, liabilities and Equity interests are included in the financial statements at the appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.  Completeness – All transactions and events that should have been recorded have been recorded. “Management is responsible for the fair presentation of financial statements” (SAS No. 106 – Audit Evidence)

8. 8 Testing & Remediation: Lessons Learned  First and Foremost ………”Stop the Bleeding”  Transaction level detail is critical  Integral support from, and reliance on, third party service providers  DFAS (MOCAS)  BTA (DTS, WAWF)  Clear understanding of systems environment from source documentation to financial statement presentation:  From Feeder Systems to Core Financial System  Third Party Service Providers

9. 9 Testing & Remediation: Lessons Learned (2)  Documented Policies, Procedures and Organizational Structure  General Ledger and Control Accounts Must Reconcile to Financial Statements  Organizational Infrastructure Must be in Place to Respond Timely to Auditor Documentation and Information Requests  Authorization and Certification for Approvals for Each Event and Transaction Fully Documented  Funds Balance with Treasury Reconciliation at Transaction Level for all Appropriations Including Shared Appropriations. (This step is critical for all financial statements - individually and collectively)

10. 10 Education & Communication Organizational Infrastructure – Is everybody ready? Audit liaison function – focal point for communication Auditor and client interaction: Documentation and Information Electronic? Hard copy? Repository? Timeline for delivery Preparation: Top to Bottom Training and message: consistent expectations Spread across the Globe

11. 11 Journey’s End? – Just the Beginning Third party verification of management achieving audit readiness, Sustainable condition to successfully meet pending audit engagement, and Maintain achievements in future years.

12. 12 Questions ?