Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium
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Transcript of Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium
Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training
Symposium
Contract Administration: Path to Audit Readiness
June 5th – 6th, 2012
FOR OFFICIAL USE ONLY
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 Contracts Administration 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 Contracts Administration.
Outcome An understanding of the status of the Contracts Administration
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.
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Contracts Administration Scope/Definition
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Definition Involves managing the establishment, maintenance and modification, vendor pay, and closeout of contracts. Major business processes include:•Execute requisition / Commitment•Source of goods •Contract Award / Obligation•Receipt and acceptance•Expenditure / Disbursement•Contract Close-out / De-obligation
Assessable Unit Lead/Team
CAPT James PoindexterBert Hovermale
Assessable Unit Support
Kevin Norman – [email protected] Mackey – [email protected]
Q1 FY12 Obligations $ 390M
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 site 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
Execute Requisition (Need for Contract)
1Requested amounts do not exceed the funds available
Source Goods
2All contracts/purchase orders are recorded in the proper period
3aAll contracts/purchase orders are recorded in the correct amount and line of accounting
3bAll contracts/purchase orders represent a valid need that is authorized and approved
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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
Receipt/Acceptance
4a All invoices are recorded in the proper period
4bAll invoices represent valid transactions that are authorized and approved
4cAll invoices are recorded in the correct amount and line of accounting
Disbursement
5 All payments are recorded in the proper period
6a All payments are recorded in the correct amount and line of accounting
6bAll payments represent valid transactions that are authorized and approved
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Key Control Objectives (KCOs)
KCO # KCO Description
De-obligation
7a All excess funds are recorded in the proper period
7bAll excess funds are recorded in the correct amount and line of accounting
7cAll excess funds represent a valid need that is authorized and approved
Information Technology
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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(KSDs)
Execution Code
Description of Transaction Key Supporting Documentation
915 To record Commitments • NC2276
540D To record Contract/purchase order and reduce Commitments
• Contract • Purchase
Order
530 To record Contract/purchase order with advance payment and reduce Commitments
• Contract • Purchase
Order
510 To record the invoice amount and reduce the funds from the contract/purchase order
• Shipping documents
• Timesheets• Invoice
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KSDs – Documentation retained to support individual financial transactions and accounting events.
Key Supporting Documentation(KSDs)
Execution Code
Description of Transaction
Key Supporting Documentation
610 To record the payment of the invoice
• Invoice
611 To record an unmatched disbursement
• Certified Invoice
540C To record a de-obligation of excess funds of the closed contract
• Final Certified Invoice
• DD1594
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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
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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Contracts AdministrationMaterial Weaknesses
Material Weakness 1: Inadequate proof of receipt
General Causes: Lack of Compliance with Established Guidance for
Receipt & Disbursement
Material Weakness 2: Inadequate documentation to support Closed Contracts
General Causes: Full Implementation of Contract Closeout SOP Access to Documentation
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FOR OFFICIAL USE ONLY
Inadequate Proof of Receipt
Issue Detail The Assessable Unit Team identified transactions of purchased
goods, where the proof of receipt was insufficient, not retained for recordkeeping, or was not generated at time of delivery.
Without proof of receipt, it is difficult to determine whether goods have been received in accordance with the contracted statement of work.
Additionally, the proof of receipt is required to verify the quantity or services invoiced to the quantity or services actually received.
Impact on Audit Readiness Proof of receipt documents are key supporting documents used to
ensure that accounts payable are recorded properly and for the correct amount.
Lack of the appropriate type of receipt document could cause disbursements to be made for which no actual goods were received, overstating Gross Outlays. 14
FOR OFFICIAL USE ONLY
Inadequate Proof of Receipt
Path ForwardA Corrective Action Plan will be Developed for implementation by the Activities. It must include:
Proper guidance via SOP or other Navy Medicine policy that designates what proof of receipt is required for different types of purchases (i.e., DD250 for goods, timesheets for personal services, etc.)
Optimally, an auditor vetted checklist for the certifier of invoices to review and sign-off on prior to certification of invoices for payment
Optimally, a built in segregation of duties between invoice receptor and invoice certifier (LPO) in WAWF
Clearly defined document retention policy for Proof of receipt support, consistent with Navy Medicine policies.
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FOR OFFICIAL USE ONLY
Inadequate documentation to support Closed Contracts
Issue Detail Based on prior testing, many contracts lacked evidence of
communication by the vendor that the final invoice had been delivered prior to closing contracts.
Also, there were contracts closed that lacked the required DD1594 or other similar required forms.
Additionally, the process is designed so that forms are completed prior to de-obligations being posted to STARS-FL, and there is no check that these transactions are posted accurately.
Impact on Audit Readiness Lack of sufficient documentation for closed contracts means
that de-obligations could be posted incorrectly, causing an understatement of the ‘Unobligated Balances Available’ line item. 16
FOR OFFICIAL USE ONLY
Inadequate documentation to support Closed Contracts
Path ForwardThe Contracts Administration Assessable Unit Team will document a formal Corrective Action Plan to address this issue. Any potential solutions must include:
A process that includes additional controls, after authorization of the de-obligaton via DD1594, that ensures that accounting transactions are recorded accurately in STARS-FL.
Optimally, a method for ensuring that transactions are not recorded in STARS-FL until a valid & authorized DD1594 is provided. This may require coordination with accounting services provider DFAS.
Optimally, coordination with other contracting agencies (NAVFAC, Fleet Logistics Command (FLC)) to ensure that adequate documentation is provided in a timely manner for potential contract close-out opportunities.
Continued implementation of Contract Closeout SOP.17
Other Contracts Deficiencies
Significant Deficiency 1: Inconsistent use and lack of required approvals of the Request for Contractual Procurement form (NC 2276)
Control Deficiency 1: Significant delays in resolving rejected payments
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Inconsistent Use and lack of approvals for NC2276s
Issue Detail The Assessment Team identified some Activities that are
using locally prepared forms instead of the NC2276 form. The NC2276s are not always filled out completely/accurately or contain required approvals
Impact on Audit Readiness Incomplete or unapproved forms for Commitments could
potentially lead to the risk of Anti-Deficiency Act violations
Path Forward / Potential Activity Actions Complete NC2276 forms in accordance to the Contract
Establishment SOP
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FOR OFFICIAL USE ONLY
Significant delays in resolving
rejected payments
Issue Detail The Assessment Team identified some Activities with
attempted payments that failed pre-validation, and were listed on the IDA 128/129 report, that were over 30 days old.
Impact on Audit Readiness Untimely resolutions to rejected payments could potentially
lead to the risk of Prompt Pay Act violations resulting in interest payment penalties.
Path Forward / Potential Activity Actions Resolve all rejected payments on the IDA 128/129 report
within 30 days or less. Follow the Daily/Non-Daily Accounting SOP.
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FOR OFFICIAL USE ONLY
Questions?
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