Transcript Slide 1

Bureau of Medicine and Surgery
2012 Navy Medicine Audit Readiness Training Symposium
Consumables: Path to Audit Readiness
June 5th – 6th, 2012
Audit Readiness
Context

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 Consumables business process 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 Consumables.
Outcome

An understanding of the status of the Consumables assessable unit, 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.
FOR OFFICIAL USE ONLY
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Consumables Scope/Definition
Definition
Consumables includes the request,
acquisition (including purchase cards),
receipt, maintenance and invoicing of
Operating Materials & Supplies. Major
business processes include:
• Requisition Execution / Commitment
• Source of Goods/Obligations
• Receipt/Acceptance
• Expenditure / Disbursement
• De-obligations
Assessable Unit Lead/Team
CAPT James Poindexter
David Hamblett
Assessable Unit Support
Kevin Norman – [email protected]
Kim Mackey – [email protected]
Q1 FY12 Obligations
$ 223M
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Audit Readiness Timeline
FY12
Assessable Units – Wave 2
Max Assertion
Date
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 2013
Control Testing Time Period
Q1
Q2
Interim Progress Milestones (90
Days, 50 %, 75 %)
FOR OFFICIAL USE ONLY
Q3
FY13
Q4
Q1
Q2
Q3
FY14
Q4
Q1
Q2
Assessable Unit Assertion
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Audit Readiness Process
Tasks
Work Products
Completed
Document Assessable Units
1
Determine which key business processes are Assessable Units
2 Document Assessable Units through interviews and observation
• Process Narrative
• Process Flowchart
Mar. 1st
Assess Internal Controls
3 Determine control objectives for each Assessable Unit
4 Highlight internal controls in process documentation
• Control Assessment
Mar. 1st
• Key Supporting
Document Matrix
Apr. 16th
• Deficiencies Listing
Apr. 30th
5 Assess whether controls are effective in meeting control objectives
Assess Supporting Documentation
6 Determine what supporting documents exist for each transaction type
7 Assess whether there are any unsupported transactions
Identify and Prioritize Deficiencies
8
Create list of deficiencies for any objectives that are not met or
transactions that are not supported
9 Prioritize deficiency list based on audit criteria
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Key Control Objectives (KCOs)
KCOs – Represent outcomes needed to achieve proper financial reporting and
are a basis by which the effectiveness of control activities can be evaluated.
KCO #
KCO Description
Execute Requisition (Need for Contract)
1
Amounts do not exceed funding authority
Source Goods
2
All obligations are recorded in the proper period
3a
All obligations are recorded in the correct amount and line of
accounting
3b
All obligations represent a valid need that is authorized and approved
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Key Control Objectives (KCOs)
KCO #
KCO Description
Receipt/Acceptance
4a
All accruals and payables are recorded in the proper period
4b
All accruals and payables represent valid transactions that are
authorized and approved
4c
All accruals and payables are recorded in the correct amount and line
of accounting
Disbursement
5
All disbursements are recorded in the proper period
6a
All disbursements are recorded in the correct amount and line of
accounting
6b
All disbursements represent valid transactions that are authorized and
approved
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Key Control Objectives (KCOs)
KCO #
KCO Description
De-obligation
7a
All de-obligations are recorded in the proper period
7b
All de-obligations are recorded in the correct amount and line of
accounting
7c
All de-obligations represent a valid need that is authorized and
approved
Information Technology
8
User access is consistent with assigned rights and privileges in
accordance with Federal Information System Controls Audit Manual
(FISCAM) requirements
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Key Supporting Documentation DMLSS
KSDs – Documentation retained to support individual financial transactions and
accounting events.
Execution Description of
Code
Transaction
Key Supporting Documentation
540
To record direct
obligation
• DD 1155 (Order for Supplies or
Services)
• Local Procurement Document
510
To record the payable
and reduce the
outstanding obligation
• DD 250 (Material Inspection and
Receiving Report)
• Packing Slip
610
To record the fund
disbursement and reduce
the payable
• Certified Invoice
WRT
To record deobligation
of unexpended balances
• Final Invoice
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Key Supporting Documentation –
Purchase Card
Execution Description of
Code
Transaction
Key Supporting Documentation
540
To record bulk obligation • Locally Prepared Procurement
Document
510
To record the payable
and reduce the
outstanding obligation
• DD 250 (Material Inspection and
Receiving Report)
• Packing Slip or Shipping
documentation
610
To record the fund
disbursement and reduce
the payable
• Certified Citibank Statement;
Invoice
• Packing Slip/Shipping
documentation
WRT
To record deobligation
of unexpended balances
• Final Invoice
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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
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Qualitative Materiality - Non-quantitative factors such as complexity of
transactions, legal or regulatory concern or system deficiencies
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Pervasiveness - Number of activities or transactions affected by the
deficiency
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Audit Dealbreaker - Issues that prevent an audit from occurring
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Existing Guidance - Determining whether current policy or SOP is in place
that meet financial reporting requirement
FOR OFFICIAL USE ONLY
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Consumables Material Weaknesses
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Material Weakness 1: Inconsistent use of the Disbursement
Reconciliation Tool (DRT) in DMLSS
General Causes:

Uniform Compliance
Reliance on Systems Controls
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Material Weakness 2: Inadequate proof of receipt
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General Causes:
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Lack of standardized documentation & process
Multiple control points
FOR OFFICIAL USE ONLY
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Inconsistent Use of the
DRT in DMLSS
Issue Detail
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The Audit Readiness team identified transactions where the Disbursement
Reconciliation Tool (DRT) was not used.
The DRT is an enhanced business process within DMLSS that compares the
dollar amount of goods received in DMLSS to the dollar amount disbursed in
STARS-FL (EC610).
If the DRT is not used, amounts disbursed in STARS-FL may differ from the
receipt amount recorded in DMLSS and will not be reviewed/reconciled.
Impact on Audit Readiness

The DRT is considered a critical control activity as it provides management
with a systematic monitoring tool to identify and resolve errors between the
logistics system and the system of record. Inconsistent use may cause
misstatements in ‘Gross Outlays’ on the Statement of Budgetary Resources to
go undetected.
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Inconsistent Use of the
DRT in DMLSS
Path Forward
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A Corrective Action Plan will be Developed for implementation by the
Activities. It must include:
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A three way reconciliation of disbursements between DMLSS, STARS-FL and
Treasury disbursement information (CHOOSE)
A review of any documents that do not pass the ‘DRT Check’
Documentation that supports the review that occurred, including:
Standardized process for reconciling items that do not pass ‘DRT Check’.
Potential Activity Actions
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Require users to complete DRT eLearning course at
https://jml149.dmlss.detrick.army.mil/resourcecenter/
Implement review and approval process for DRT reconciliations once
developed.
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Inadequate Proof of Receipt
Issue Detail
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The Assessable Unit team noted several Activities that do not keep packing
slips or other similar shipping documentation on file.
Packing slips/shipping documentation should be maintained in order to
validate that items received are correctly entered into DMLSS.
Impact on Audit Readiness
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If packing slips/shipping documents are not retained on file, there is no proof
of receipt of consumable goods.
Accuracy of the transactions in the general ledger can not be validated
without this proof of receipt.
Could result in incorrect amounts being recorded to accounts payable or
disbursed to vendors, which could potentially lead to over- or understatement
of either amount on the Statement of Budgetary resources
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Inadequate Proof of Receipt
Path Forward
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A Corrective Action Plan will be Developed for implementation by the
Activities. It must include:
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A method for standardizing the collection and filing of packing slips
Electronic data retention is optimal, but not ultimately required
A reconciliation/review of amounts listed on packing slips, or other receiving
documents, to ensure that they agree to amounts entered in DMLSS and
documented on the DD250.
Optimally, Mechanism built into payment process that doesn’t allow for payment
unless reconciliation/review has been performed.
Potential Activity Actions
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Work to maintain packing slips in a standard way for purchased consumables.
Participate in development of retention strategy in relevant SOPs via actively
submitting change requests and feedback when possible.
FOR OFFICIAL USE ONLY
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Other Consumables Deficiencies
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Significant Deficiency 1: Inadequate Segregation of Duties for
the Purchasing and Receipt functions
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Control Deficiency 1: Inconsistent execution of the purchase
card reconciliation process
FOR OFFICIAL USE ONLY
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Inadequate Segregation of Duties
Issue Detail

The Assessment Team identified instances among Activities where it appears
that the person who ordered goods was the same as the person who
acknowledged receipt of the items in DMLSS
Impact on Audit Readiness
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If the person ordering goods is the same as the person acknowledging receipt
of the goods ordered, there is potential risk of fraud, waste and abuse
violations which may impact the accuracy of financial statements
Path Forward / Potential Activity Actions
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Review DMLSS user access roles and responsibilities
FOR OFFICIAL USE ONLY
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Inconsistent execution of the
purchase card reconciliation process
Issue Detail

The Assessment Team identified inconsistencies in the execution of the
purchase card reconciliation process where Activities did not properly
reconcile and/or properly record adjustments in STARS-FL
Impact on Audit Readiness

If purchase card reconciliations are not performed routinely in accordance
with Navy Medicine policy, required adjustments may not be recorded in
STARS-FL, which may impact the accuracy and reliability of financial
statements
Path Forward / Potential Activity Actions

Execute reconciliations in accordance with the Purchase Card SOP
FOR OFFICIAL USE ONLY
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Questions?
FOR OFFICIAL USE ONLY
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