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Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training
Symposium
Federal and Non-Federal Receivables: Path to Audit Readiness
June 5th – 6th, 2012
FOR OFFICIAL USE ONLY
Audit ReadinessContext DoD is required to assert audit readiness for the Statement of
Budgetary Resources (SBR) by the end of Fiscal Year 2014. As part of Navy Medicine’s audit readiness effort, the Federal and Non-Federal Receivables business processes has been identified as an assessable unit for which assertion must take place.
Purpose To discuss the Key Control Objectives (KCOs), Key Supporting
Documents (KSDs), identified gaps and potential corrective actions for Federal and Non-Federal Receivables.
Outcome An understanding of the status of the Federal and Non-Federal
Receivables assessable units, including major deficiencies and what can be done now at the field level to facilitate a successful financial statement audit. Some assessable units may not require field action at this time.
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Receivables Scope & Definitiion
FOR OFFICIAL USE ONLY
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Definition Federal Receivables: Includes medical treatment receivables due from federal entities such as U.S. Coast Guard (USCG), National Oceanic and Atmospheric Administration (NOAA), the U.S. Public Health Service (PHS) and the Veteran’s Administration (VA)
Non-Federal Receivables: Includes medical treatment receivables due from non-federal entities (e.g. Health Insurance Companies, Third Party Collections, Medical Affirmative Claims Medical Service Accounts, paid patients)
Assessable Unit Lead/Team
Mel BeckerBill Condon
Assessable Unit Support
Kevin Norman – [email protected] Mackey – [email protected]
Q1 FY12 Collections Federal Receivables: $10.5 Million
Non-Federal Receivables: $9.7 Million
Audit Readiness Timeline
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FY12 FY13 FY14
Assessable Units – Wave 2 Max Assertion Date
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
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 2013Assessable Unit AssertionInterim Progress
Milestones (90 Days, 50 %, 75 %)
Control Testing Time Period
Audit Readiness Process
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Tasks Work ProductsComplet
ed
Document Assessable Units
1Determine which key business processes are Assessable Units
• Process Narrative
• Process Flowchart
Mar. 1st
2Document Assessable Units through interviews and observation
Assess Internal Controls3 Determine control objectives for each Assessable Unit
• Control Assessment
Mar. 1st
4 Highlight internal controls in process documentation
5Assess whether controls are effective in meeting control objectives
Assess Supporting Documentation
6Determine what supporting documents exist for each transaction type • Key Supporting
Document Matrix
Apr. 16th
7Assess whether there are any unsupported transactions
Identify and Prioritize Deficiencies
8Create 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
Key Control Objectives (KCOs)
KCO # KCO Description
Establish Agreement
1Anticipated and accepted orders do not exceed authority
2aAll unfilled customer orders are recorded in the correct period
2bUnfilled customer orders in the correct amount and line of accounting
2cUnfilled customer orders represent a valid need that is authorized and approved
Billing
3Obligations do not exceed unfilled customer orders
4aAll revenues/receivables are recorded in the proper period
FOR OFFICIAL USE ONLY
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KCOs – Represent outcomes needed to achieve proper financial reporting and are a basis by which the effectiveness of control activities can be evaluated.
Key Control Objectives (KCOs)
KCO #
KCO Description
4bAll revenues/receivables represent valid transactions that are authorized and approved
4cAll revenues/receivables are recorded in the correct amount and line of accounting
Collections
5 All collections are recorded in the proper period
6aAll Collections are recorded in the correct amount and line of accounting
6bAll collections represent valid transactions that are authorized and approved
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Key Control Objectives (KCOs)
KCO #
KCO Description
Outstanding Receivables
7aAll uncollectible receivables are recorded in the proper period
7bAll uncollectible receivables are recorded in correct amount & line of accounting
7cAll uncollectible receivables represent a valid need that is authorized and approved
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Key Supporting Documentation – Federal
Receivable
Execution Code
Description of Transaction
Key Supporting Documentation
TBD To record the unfilled customer order
• TBD
121, 201 To record service rendered and work estimate and cost transfer
• SF 1080• NC 2275
610, 202 To record the collection and reduce the receivables
• SF 1080
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KSDs – Documentation retained to support individual financial transactions and accounting events.
Key Supporting Documentation – Non-
Federal Receivable
Execution Code
Description of Transaction Key Supporting Documentation
TBD To record the unfilled customer order
• TBD
121, 201EST
To record service rendered and work estimate and cost transfer
• Invoice
610, 202REF
To record the collection and reduce the receivables
• SF 215 • DD 1131
TBD To record the net realizable value (NRV)
• Monthly NMACT Package
FOR OFFICIAL USE ONLY10
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.
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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 SOP is in place that meet financial reporting requirement
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Federal and Non-Federal Receivable Material
Weaknesses
Material Weakness 1: Unfilled customer orders are not recorded in the accounting system
Material Weakness 2: Medical billings/Receivables are not recorded in the accounting system until collections are received
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FOR OFFICIAL USE ONLY
Unfilled customer orders are not recorded
Issue Detail No unfilled customer orders are recorded in STARS-FL. Unfilled customer orders should be recorded to present authority
derived from providing services for which costs will be incurred. By not recording unfilled customer orders, we are causing a required
cost transfer once collections are made for services provided. This is a departure from GAAP, and an audit deal breaker.
Impact on Audit Readiness If the unfilled customer order is not recorded, the authority to
provide services to other federal agencies is not being adequately reported on the financial statements until after those services are provided, which will result in a materially misstated “Change in Unfilled Customer Order" line item on the SBR.
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FOR OFFICIAL USE ONLY
Unfilled customer orders are not recorded
Path ForwardA Corrective Action Plan will be Developed for implementation by the Activities. Potential solutions would vary between Federal and Non-Federal business processes:
For Federal Receivables, implementation of the Inter-Agency Agreement currently being put into place with the United States Coast Guard could materially change the accounting for this process and may remediate this Material Weakness if implemented correctly as written. The corrective action would focus on how to implement and execute similar IAA for other agencies services at Navy Medicine MTFs.
For Non-Federal Receivables, Navy Medicine is a unique service provider, and industry experts will need to be consulted to determine how to derive an expected authority from insurance companies based on eligible personnel being serviced who have Other Health Insurance (OHI).
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FOR OFFICIAL USE ONLY
Receivables are not recorded until collections are received
Issue Detail Receivables are not entered into STARS-FL until they have
been collected. Current Navy Medicine guidance dictates that the MTFs should not establish reimbursable authorization until collection and therefore cannot recognize the receivable at the time services are rendered.
DOD Comptroller issued Defense Health Program (DHP) Accounts Receivables Policy dated May 2, 2008 stating all DHP-funded activities will recognize and record a receivable when it establishes a claim based on goods or services provided.
This is a departure from GAAP, and an audit deal breaker.
Impact on Audit Readiness Recording accounts receivable upon receipt of collections
causes the account receivables balances to not be recorded in the proper accounting period, if at all. This material weakness significantly impacts the SBR because the account receivable and revenues balances are not fairly represented.
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FOR OFFICIAL USE ONLY
Receivables are not recorded until collections are received
Path ForwardThe Federal & Non-Federal Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Potential solutions may vary between Federal and Non-Federal business processes, but would include two key phases:
Phase One: Development of a GAAP compliant, achievable, sustainable ‘to-be’ business process that incorporates current internal controls and key supporting documents where possible.
Phase Two: Development of a plan for implementation of the ‘to-be’ process across the organization, including:
Timeline for implementation Actions necessary to implement new process Roles and responsibilities for affective personnel Reporting requirements to document process with Audit
Readiness PMO. 17
Other Receivables Deficiencies
Control Deficiency 1: Inconsistent or inaccurate execution of patient registration for completion of Third Party Collection Program/Medical Service Accounts/Other Health Insurance (OHI) – DD 2569 forms
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FOR OFFICIAL USE ONLY
Inconsistent Use or Inaccurate Completion of
DD 2569 FormsIssue Detail The Assessment Team identified several Activities that are not
obtaining an accurate and current DD 2569 for all patients that receive treatment.
Currently, procedures/methods/controls used by clinic personnel are subject to error and great variation in the DEERS check. An incorrect patient registration and/or failure to obtain/enter OHI data potentially results in non-recognition of a receivable.
Impact on Audit Readiness Missing or incomplete DD 2569s affects the Activity’s ability to
properly bill and collect from the responsible party, resulting in unrecorded accounts receivable.
Path Forward / Potential Activity Action Improve the collection and completion of DD 2569 forms
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