Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training
Symposium
Reimbursable Work Orders (RWO): Path to Audit Readiness
June 5th – 6th, 2012
FOR OFFICIAL USE ONLY
Audit ReadinessContext 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.
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RWO Scope/Definition
FOR OFFICIAL USE ONLY3
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 HowellMike BrandtEric EggerMel Becker
Assessable Unit Support Bhavin Patel – [email protected] Swingle – [email protected]
Q1 FY12 Obligations RWO-Grantor: $109 MillionQ1 FY12 Unfilled Customer Orders
RWO-Performer: $44.2 Million
Audit Readiness Timeline
FOR OFFICIAL USE ONLY4
FY12 FY13 FY14
Assessable Units – Wave 2 Max Assertion Date Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Travel 4 SEP 2012Consumables 3 DEC 2012Reimbursable Work Orders – Grantor
3 DEC 2012
Reimbursable Work Orders – Performer (Non-UBO)
1 APR 2013
Military Payroll (including RPN) 1 APR 2013Contract Administration 1 JUL 2013Non-Federal Receivables (UBO/Medical Treatment)
1 JUL 2013
Federal Receivables (UBO/Medical Treatment)
3 SEP 2013
Civilian Payroll 2 DEC 2013Financial Reporting 2 DEC 2013Funds Management (FBWT) 2 DEC 2013
Assessable Unit AssertionInterim Progress Milestones (90 Days, 50 %, 75 %)
Control Testing Time Period
Audit Readiness Process
FOR OFFICIAL USE ONLY5
Tasks Work Products Completed
Document Assessable Units1 Determine which key business processes are
Assessable Units• Process
Narrative
• Process Flowchart
Mar. 1st2 Document 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
5 Assess whether controls are effective in meeting control objectives
Assess Supporting Documentation6 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 Deficiencies8 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
Deficiency Types
FOR OFFICIAL USE ONLY6
Material Weakness – A deficiency, or combination of deficiencies, ininternal 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.
MWSDCD
Considerations For Deficiency Type
FOR OFFICIAL USE ONLY7
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
Reimbursable Work Order - Grantor
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FOR OFFICIAL USE ONLY
SOPs: Your Map to Audit Readiness
The internal controls required for RWO-Grantor are in the Support Agreements: Receiver-Side SOP
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Follow the SOPs ALL THE TIME and TO THE LETTER!
SOP Questions/Feedback:[email protected]
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 abuseCommand Action Required Implement Support Agreements as required in accordance with
Support Agreements: Receiver-side Standard Operating Procedure (SOP) Section 1.7 and BUMEDINST 7050.1B
Include sufficient detail on goods or services on funding document
FOR OFFICIAL USE ONLY
KCO1: Support Agreement
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MWSDCD
FOR OFFICIAL USE ONLY
KCO2: Sufficient Budget Authority
Control Objective Commitments and obligations do not exceed budget
authorityImpact 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 checkCommand Action Required Perform funds check and commit funds in FASTDATA (or
STARS-FL if not on FASTDATA) Non-Research & Development Activities should use
FASTDATA
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MWSDCD
FOR OFFICIAL USE ONLY
KCO3: Timely Recording of Obligation
Control Objective All obligations are recorded in correct periodImpact 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 periodCommand 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO4: Accurate Recording of Obligation
Control Objective All obligations are recorded accuratelyImpact 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.
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MWSDCD
FOR OFFICIAL USE ONLY
KCO5: Valid ObligationsControl Objective Obligations are validImpact on Audit Readiness Recording invalid obligations could improperly state
“Obligations Incurred” and “Unobligated Balance” on SBRCommand 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)
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MWSDCD
FOR OFFICIAL USE ONLY
KCO6: Timely Recording of Accruals & A/P
Control Objective All accruals & A/P are recorded in the correct periodImpact on Audit Readiness Recording accruals & A/P could improperly state
“Obligations Incurred” and “Unpaid Obligations” on SBR IPAC posts A/P after disbursementCommand Action Required BUMED will work on developing a corrective action to
ensure payables are recorded in the correct period
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MWSDCD
FOR OFFICIAL USE ONLY
KCO7: Accurate Recording of Accruals & A/P
Control Objective All accruals & A/P are recorded accurately and invoices
are validImpact on Audit Readiness Recording accruals & A/P could improperly state
“Obligations Incurred” and “Unpaid Obligations” on SBR Lack of documentation to support posted A/PCommand Action Required BUMED will work on developing a corrective action to
ensure payables are recorded accurately and invoices are valid
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MWSDCD
FOR OFFICIAL USE ONLY
KCO8: Timely Recording of Disbursements
Control Objective All disbursements are recorded in the correct periodImpact on Audit Readiness Recording disbursements in the incorrect period could
improperly state “Gross Outlays” on SBR Lack of support for IPACs is a Material WeaknessCommand Action Required BUMED will work on developing a corrective action to
ensure disbursements are recorded in the correct period
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MWSDCD
FOR OFFICIAL USE ONLY
KCO9: Disbursements are Valid & Accurately
RecordedControl Objective All disbursements are valid and recorded accuratelyImpact on Audit Readiness Recording invalid or inaccurate disbursements could
improperly state “Gross Outlays” on SBR Lack of support for IPACs is a Material WeaknessCommand Action Required BUMED will work on developing a corrective action to
ensure disbursements are valid and recorded accurately
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MWSDCD
FOR OFFICIAL USE ONLY
KCO10: Review of Obligations and Accruals
Control Objective All obligations and accruals are validated and adjustedImpact 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 SBRCommand 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO10: Annual ReviewAnnual Review Checklist Required by Required by
BUMEDINST 7050.1B Required by Support
Agreement: Receiver-Side SOP, Sections 3.8 and 4.3
Tracked quarterly in Spotlight Metrics
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RWO-Grantor: Key Supporting Documentation
FOR OFFICIAL USE ONLY21
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 none
FOR OFFICIAL USE ONLY
Lack of Supporting Documentation for RWO-G
DisbursementsIssue 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.
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FOR OFFICIAL USE ONLY
Lack of Supporting Documentation for RWO-G
DisbursementsPath ForwardThe 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.
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FOR OFFICIAL USE ONLY
Reimbursable Work Order – Performer
(Non-Uniform Business Office)
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FOR OFFICIAL USE ONLY
KCO1: Timely Recording of Unfilled Orders
Control Objective All unfilled customer orders are recorded in the correct
periodImpact 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO2: Valid/Accurate Recording of Unfilled
OrdersControl 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO3: Obligation of Reimbursable Authority
Control Objective Obligations incurred in performing customer work do not
exceed reimbursable authorityImpact on Audit Readiness Audit requires report on legal compliance (ADA) Lack of controls to ensure obligations do not exceed
reimbursable authorityCommand 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 entities27
MWSDCD
FOR OFFICIAL USE ONLY
KCO4: Timely Recording of Accruals and A/R
Control Objective All accruals and/or A/R are recorded in correct periodImpact 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 collectionCommand Action Required BUMED will work on corrective action to address STARS-
FL posting logic
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MWSDCD
FOR OFFICIAL USE ONLY
KCO5: Valid/Accurate Recording of Accruals &
A/RControl Objective All accruals and A/R are valid and recorded accuratelyImpact 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO6: Timely Recording of Collections
Control Objective All collections are recorded in the correct periodImpact 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 costs30
MWSDCD
FOR OFFICIAL USE ONLY
KCO7: Valid/Accurate Recording of Collections
Control Objective All collections are valid and recorded accuratelyImpact 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO8: AdjustmentsControl Objective All expired orders, unfilled orders, uncollected A/R are
validatedand 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
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MWSDCD
FOR OFFICIAL USE ONLY
KCO8: Annual ReviewAnnual Review Checklist Required by BUMEDINST
7050.1B Tracked quarterly in
Spotlight Metrics
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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 none202 Collection none
FOR OFFICIAL USE ONLY34
FEDERAL vs. NON-FEDERALNon-Federal: Advance (202) precedes Reimb Authority (121)Federal: Reimb Authority (121) precedes Collection (202)
For Non-Federal Customers: Do Not Record Reimbursable Authority in Excess of Advance!
FOR OFFICIAL USE ONLY
Lack of Supporting Documentation for RWO-P
A/R & CollectionsIssue 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.
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FOR OFFICIAL USE ONLY
Lack of Supporting Documentation for RWO-P
A/R & CollectionsPath ForwardThe 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.
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FOR OFFICIAL USE ONLY
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
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The key to audit readiness is in YOUR hands!
FOR OFFICIAL USE ONLY
Questions?
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