Auditability Update

ASMC National Capital PDI Navy Break-Out Session

Ms. Karen FenstermacherDeputy Assistant Secretary of the Navy (Financial Operations)

3 March 2015

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Agenda

FY2015 Navy SBA Audit Status

Game Plan for Full Financial Auditability by FY2017

What’s Left to Do – the Big Rocks

Accomplishments to Date

Discussion

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Milestone: Navy’s initial SBA Audit began in December 2014

Report PhaseOctober 1 – November 13*

Test PhaseJuly 1 – November 11*

Planning PhaseDecember 17 – May 20*

Control PhaseApril 16 – August 31*

Auditors gain understanding of business operations

Audit plan is developed

Auditors perform walk-thrus of business processes and internal controls

Orgs support with explanations, documentation

Auditors develop samples and initiate testing of financial transactions

Commands provide key supporting documentation

Auditors evaluate test results to determine compliance with financial audit regulations

A report of findings is provided to DON

MediumLow High Medium

2014 2015 2016 2017 20192018

AssertionSchedule of Budgetary Activity

Existence & Completeness

Assertions

Assertion

Full Financial Statements

Report to Congress on Full Financial

Statement Audit

Audit

Full Financial Statements

AuditSchedule of Budgetary Activity

*All dates are Cotton & Company estimates

Auditor Requests for Information (as of 24 Feb) Financial IT Total

Delivered to Auditors (Completed) 59 261 320

Still Outstanding 32 298 330

Total Requests 91 559 650

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Command Roles – During Audit and Beyond

Example: NFRs on Navy/USMC Reimbursable Work Order processes spurred move toward a DON-wide automated solution -- Invoice

Processing Platform (IPP)

Audit Notice of Findings and

Recommendations (NFRs) will drive Corrective Action

Plans (CAPs)

Audit findings will identify necessary

changes to business

processes and systems

During the audit, respond promptly

to auditors’ requests for

documentation – Know your

business and document it!

NFRs can have a wide impact on the DON

Enterprise. CAP implementation will require:

Navy action on NFRs: promptly

implementing CAPs.

Progress on CAPs will be noted during successive audits.

Priorities

Commands provide information and documentation during an audit. However, active audit participation does not end with the Audit Report. Weaknesses must be corrected., and corrective actions must be sustained.

Notice of Findings and Recommendations (NFRs) – Why do they matter?

NFRs outline weaknesses and concerns that need to be addressed by the DON

Addressing NFRs will require collaborative discussions that will shape solutions and probably require resources

Corrective actions must be implemented by relevant commands – or the entire Enterprise

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On to FY2017: Validated SBA entries will support lines on the three other statements

Schedule of Budgetary

Activity

Balance Sheet

Statement of Net Cost

Statement of Changes in Net Position

Single Statement Auditability

Full Financial Statement Auditability

Work performed to prepare the SBA for audit can be leveraged for the other three financial statements – providing momentum toward the FY 2017 goal of full financial statement auditability

~49%

~39%

~72%

- % Applicability to Additional Statements -

Crosswalks

Posting Logic Analysis

Functional Assessment (Processes/ Controls)

~78%

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FY15 FY17 FY18FY16

OCT NOV DEC JAN FEB SEPMAR APR MAY JUN JUL AUGOCT NOV DEC JAN FEB SEPMAR APR MAY JUN JUL AUGOCT NOV DEC JAN FEB SEPMAR APR MAY JUN JUL AUGSEP

Statement of Budgetary Resources (Wave 2)

AssertionFinancial Statement

Audit Begins9/30

Potential AUP Engagement

3/31

10/1

Assertion* 9/30

FIAR

Nav

y

Potential AUP Engagement Financial Statement

Audit Begins

9/30 3/31 10/1

Assertion* 9/30

9/30**

FIAR

Nav

y

AssertionBalance Sheet, Statement of Net Cost, Statement of Changes in Net Position(Waves 3 & 4)

Financial Statement Audit Begins

10/1

FIAR

Nav

y

Potential AUP Engagement

Financial Statement Audit Begins

9/30

3/31

10/1

FIAR

Nav

y

AssertionBalance Sheet, Statement of Net Cost, Statement of Changes in Net Position(Waves 3 & 4)

Statement of Budgetary Resources (Wave 2)

Assertion9/30

Potential AUP Engagement

3/31

*Navy’s intent is to iteratively build beginning balances each year starting with FY15. This approach per OUSD(c) must be approved by GAO and DODIG. Navy dates are contingent upon Beginning Balance approach being approved, and are reflected above with the Navy Date icon.

**Navy’s intent is to forego examinations and initiate full financial statement audit in accordance with NDAA of 2010.

Financial Statement Audit Begins10/1**

Financial Statement Audit Begins10/1**

Assertion*9/30

Financial Statement Audit Begins10/1**

Assertion* 9/30

Financial Statement Audit Begins10/1**

Confidence checkpoints will occur to assess progress to date made for audit readiness tasks performed. Tasks and timelines will be re-evaluated and, if needed, revised.

Confidence Checkpoint01/31

Confidence Checkpoint01/31

Confidence Checkpoint01/31

Confidence Checkpoint01/31

Confidence Checkpoint2/28

Confidence Checkpoint10/30

Confidence Checkpoint10/30

Confidence Checkpoint10/30

Assertion* 9/30

The dates above are tentative dates as we are still working to finalize our full financial statement auditability strategy. Once the strategy is complete, we will make changes to the dates as needed.

Navy’s game plan to reach full auditability by FY2017 Checkpoints

FIAR Dates

Navy Dates

NDAA Mandate

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What the Chart Says --

Game Plan Highlights30 September 2015

• Assert General Fund Statement of Budgetary Resources (SBR)• Build on Schedule of Budgetary Activity (SBA) work so far

30 September 2017

• Assert the other seven General Fund/Working Capital Fund statements:

• WCF SBR• GF/WCF Balance Sheet• GF/WCF Statement of Net Cost• GF/WCF Statement of Changes in Net Position

Now thru FY2017

• Periodically conduct confidence checkpoints• Assess auditability progress to date • Re-evaluate timelines/milestones if necessary• Get auditor read-outs if necessary on progress• Agreed Upon Procedures to dig further if required

Audit of all statements begins early in FY2018

Flexible approach to maximize audit readiness by the end of FY2017

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On The To-Do List --

Challenges To MeetBusiness Processes • Continue remediation and sustainment

• Search for Enterprise, impactful solutions – e.g., IPP

Asset Management • Complete Existence and Completeness on General Equipment, OM&S, Real Property

• Implement valuation strategy• Sustain gains

Data Management • Remediate control deficiencies• Continue building out data warehouse/analytics• Emphasize Navy ERP capabilities

Defense Agency Service Providers

• Forge ever-closer collaboration – many controls are performed outside Navy!

From BSOs’ Perspective • Resources and Policy are concerns

Many hands on the wheel will be required!

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Solid Achievements To Date

FIAR Accomplishments Strengthened Controls Over Business Processes

• As demonstrated by positive results on segment exams

Overhaul of Business Systems has begun

• Controls assessments on major business/financial systems; CAPs must be expedited

• Navy ERP change backlog tackled

Progress in Asset Accountability

• Existence and Completeness validated for major military equipment, ordnance; progress continues

• Valuation strategy evolving

First Congressional mandate met

• SBA audit began December 2014

Sense of urgency must continue to meet FY2017 goal