Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Key Audit Issues in Civilian Payroll June 4 th, 2012

Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training

Symposium

Key Audit Issues in Civilian Payroll

June 4th, 2012

FOR OFFICIAL USE ONLY

Key Audit Issues – Civilian Payroll

Context Department of Defense (DoD) is required to assert audit

readiness for its Statement of Budgetary Resources (SBR) by the end of Fiscal Year 2014. As a part of this effort, Civilian Payroll has been identified as a business process that materially affects the SMA-Navy SBR.

Purpose This will serve as open dialogue session regarding the key issues

identified in successfully asserting Audit Readiness in Civilian Payroll. Solutions will be proposed for visibility and discussion where applicable.

Outcome An understanding of the status of Civilian Payroll audit issues,

including expectations for field level actions to facilitate successful completion of the Navy Medicine audit readiness plan.

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Civilian Payroll Scope & Definition

FOR OFFICIAL USE ONLY3

Sub-Processes • Hiring• Time & Attendance• Payroll Processing• Personnel Management• Employee Separation

Assessable Unit Lead/Team Ms. Kimberly McIntireMs. Mitzi CruzMs. Terry Carey

Assessable Unit Support Bhavin Patel – [email protected] Swingle – [email protected]

Q1 FY12 Disbursements $313 Million

mailto:[email protected]


Audit Readiness Timeline


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

Key Considerations when Auditing Payroll

Accurate Employee Records: An auditor will want to ensure that an organization has the proper procedures in place to accurately collect and record changes to employee pay scale, benefit elections, etc.

Complete Time & Attendance Information: An auditor will test the controls in place for the time certification process within an organization, to validate that time is accurately recorded, and proper documentation is retained.

Correctly Processed Payroll: An auditor will review documents such as a SAS70 or SSAE 16 to ensure that payroll is being processed correctly by third party service providers.

Assurance over Payroll Interfaces: An auditor will want to ensure that processed payroll data is entered into the general ledger correctly.


How an Auditor willAudit Payroll


Assessing and testing internal controls to determine if they are designed effectively to mitigate the risk of material misstatement:

Reviewing that timesheets are properly certifiedReviewing for authorization of employee personnel record changes (SF-52)

Reviewing SAS70 or SSAE16 for effective payroll processing controls

Validating that processes are in place to reconcile processed payroll data received to payroll data included in general ledger.

Performing substantive testing to ensure that supporting documentation is available to confirm transaction balances:

Reviewing support is available for leave or overtime included on time sheets

Validating that amounts on SF-52s are consistent with Master Employee Record (MER)

Recalculating payroll amounts in Gross Pay FileRe-performing payroll reconciliations.

Audit Readiness Team process for identifying potential audit issues


Assessing internal controls within each assessable business process to ensure that they meet certain “Key Control Objectives”:

Accounting transactions are properly authorizedAccounting transactions are for correct amountsAccounting transaction occur in the proper period

Assessing internal controls within each assessable business process to determine if they are designed and operating effectively to mitigate the risk of material misstatement:

Design Effectiveness – Is the process set up correctly to prevent errors

Operating Effectiveness – Is the process being executed correctly to prevent errors

Validating that each transaction type within a business process has an identified and available “Key Supporting Document”.

Civilian Payroll at Navy Medicine


A high-level view of the business process was able to be captured.

Process touches all departments of Navy Medicine. Wide variation exists in the process from activity to activity.

Need to validate & standardize processes across Navy Medicine.

Lack of a consistent access to systems data & capabilities seems to drive many audit issues:

SLDCADA DCPS CHOOSE (Treasury Dept.)

Dept. of Navy is in process of performing same standardization of civilian payroll across sub-commands; alignment with that plan is critical.


Civilian Payroll Working Group

Working Group Details Held April 30 – May 4 at BUMED HQ. Comprised of personnel in multiple positions, from multiple

activities and regions. Objectives were to address high priority civilian payroll

process weaknesses.

Results Standard Time & Attendance process Updated Time & Attendance Instruction was vetted through

attendees to ensure requirements could be met by all Activities Reconciliation was decided on:

MER to SLDCADA Gross Pay File to Work Year Personnel Cost (WYPC), Treasury, and the

general ledger (STARS-FL)9

Civilian Payroll Material Weaknesses

Material Weakness 1: Lack of Reconciliation Between the Standard Accounting and Reporting System – Field Level (STARS-FL), Defense Civilian Pay System (DCPS), and Treasury

Material Weakness 2: Time & Attendance Inconsistencies

General Causes: Lack of Standard Processes; No SOP Availability of Data Multiple Error Possibilities



Reconciliation in Payroll Processing

Issue Detail No standardized reconciliation occurring at Navy Medicine between

Gross Pay File transmitted by DCPS, STARS-FL, and Treasury. Reconciliation is required to ensure that amounts included in Gross

Pay File are being accurately recorded in STARS-FL, as well as at Treasury.

Reconciliation should be performed on a bi-weekly pay period basis.

Path Forward Activities will be responsible for reconciling the Master Employee

Record (MER) to SLDCADA and the Gross Pay File (GPF) to the general ledger (STARS-FL) and Work Year Personnel Cost (WYPC).

Regions will be responsible for reconciling the GPF to the general ledger, WYPC, and Treasury.

Standardized SOP for Payroll Reconciliation to be drafted by August 2012.

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Time & Attendance

Issue Detail Variations exist across the enterprise in how Time &

Attendance is recorded and certified. Over time certification processes have shifted at the field

level on a varying basis, creating no standard process. Some activities have a decentralized process; others are

centralized.

Path Forward Decentralize, Decentralize, Decentralize Timekeeping instruction updated to ensure requirements

could be met by all activities. Work with SLDCADA to have standardized profile (when

possible) across Navy Medicine12


In The Mean Time……. DECENTRALIZE!

Communication (up and down the chain) Work in progress

CIVPAY Audit Toolkit Check sheet for timekeeping (employee, supervisor,

CSR/SA) Draft of Timekeeping instruction Accrual basics Region Recon tool Activities Recon tool

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Questions?

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Symposium

Key Audit Issues in Consumables

June 4th, 2012


Key Audit Issues – Consumables


readiness for its Statement of Budgetary Resources (SBR) by the end of Fiscal Year 2014. As a part of this effort, Consumables has been identified as a business process that materially effects the SMA-Navy SBR.


identified in successfully asserting Audit Readiness in Consumables. Solutions will be proposed for visibility and discussion where applicable.

Outcome An understanding of the status of Consumables audit issues,


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Consumables Scope/Definition


Definition This assessable unit involves the request, acquisition (including purchase cards), receipt, maintenance and invoicing of Operating Materials & SuppliesThe major business processes include: •Requisition Execution•Source of Goods/Obligation•Receipt/Acceptance•Disbursements•De-obligations

Assessable Unit Lead/Team CAPT James PoindexterDavid Hamblett

Assessable Unit Support Kevin Norman – [email protected] Mackey – [email protected]

Q1 FY12 Obligations $ 223M





FY12 FY13 FY14


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Travel 4 SEP 2012



3 DEC 2012


1 APR 2013




1 JUL 2013


3 SEP 2013






Key Considerations when Auditing Consumable

GoodsMaking Accurate Payments: An auditor will want to validate that an organization has the proper procedures in place to ensure that payments made for consumable goods are for the right quantity at the most up-to-date price.

Standardized Receipt: An auditor will test the controls in place across the organization to ensure that there is standardization in the receipt process for consumable goods. Proper standard receipt and documentation of receipt are critical to ensure that payments aren’t made if goods aren’t received.

Proper Classification: An auditor will review accounting transactions to ensure that consumable goods are expensed, not capitalized, and are recorded in the right amount, in the proper period, with the appropriate financial detail.


How an Auditor willAudit Consumables



Review that orders are appropriately authorizedReview that processes are in place to appropriately record receipt, and maintain proof of receipt documentation

Review controls in place to ensure disbursements are accurately recorded for consumables received

Validate that a reconciliation occurs between order and disbursement


Review support of packing slips and DD250 to support disbursements

Validating that the order amount matches the total obligation amount

Re-performing calculation of disbursement amounts

Consumables at Navy Medicine


Process is well documented related to DMLSS, we may not have enough detail related to non-DMLSS and Purchase Card controls.

Warehousing of consumables seems to be well controlled but does add an extra step to process which has the potential to increase risk.

(e.g., receipt vs. acceptance)

Understanding the variation in Defense Medical Logistics Standard Support (DMLSS) capabilities across organization may affect controls. New DMLSS functionality (e.g., multiple appropriations) and training will help as commands come on board.

Navy Medicine Spend Analysis shows an increase in e-commerce. Continued decrease in the use of GCPC for purchasing medical supplies and use as a method of payment will improve audit readiness.

Consumables Material Weaknesses

Material Weakness 1: Inconsistent use of the Disbursement Reconciliation Tool (DRT) in DMLSS

General Causes: Uniform Compliance Reliance on Systems Controls

Material Weakness 2: Inadequate proof of receipt

General Causes: Lack of standardized documentation & process Multiple control points



Inconsistent Use of the DRT in DMLSS

Issue Detail 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. 23


Inconsistent Use of the DRT in DMLSS

Path ForwardObligation balance in DMLSS must match FASTDATA:

DRT’s must be reviewed and corrective action taken to ensure that proper obligation authority is maintained in DMLSS:

Processed DRT’s update current year funds in DMLSS Research variances before processing Ensure disbursements posted to STARS-FL are received in DMLSS

Use the Disbursement Reconciliation Tool to identify problem disbursements, not passing the ‘DRT Check’:

DRT’s posted to tab 3, “Errors – Part 3”, may indicate obligations not in DMLSS or changes to the LOA after the initial obligation

DRT’s posted to tab 4, “Open – Part 4”, have not been fully receipted in DMLSS

Know and use the Disbursement Reconciliation Tool: Require users to complete DRT eLearning course at: https://jml149.dmlss.detrick.army.mil/resourcecenter (select E-learning

Category) Correct problems or procedures to ensure Transaction Excellence 24

https://jml149.dmlss.detrick.army.mil/resourcecenter


Inadequate Proof of Receipt

Issue Detail 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 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

25



Path ForwardDocument receipt of goods and retain the evidence:

All material ordered receives proof of receipt Develop a retention strategy to accommodate decentralized receiving

practices Electronic data retention is optimal, but not required

Perform spot checks to ensure compliance: All documents must be accessible/retrievable Test to ensure document matches DMLSS receipt and accounts

payable in STARS-FL Ensure receipts are electronically processed in DMLSS in a timely

manner

Document receipt when final acceptance is not obtained: Note when item is received at central location but not accepted by

end user Ensure appropriate resolution and proper documentation is provided

for any returned material 26


Questions?

27


Symposium

Key Audit Issues in Contracts Administration

June 4th, 2012


Key Audit Issues – Contracts Administration


readiness for its Statement of Budgetary Resources (SBR) by the end of Fiscal Year 2014. As a part of this effort, Contracts Administration has been identified as a business process that materially effects the SMA-Navy SBR.


identified in successfully asserting Audit Readiness in Contracts Administration. Solutions will be proposed for visibility and discussion where applicable.

Outcome An understanding of the status of Contracts Administration audit

issues, including expectations for field level actions to facilitate successful completion of the Navy Medicine audit readiness plan.

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Contract Administration Scope/Definition


Definition Involves managing the establishment, maintenance and modification, vendor pay, and closeout of contracts. Major business processes include:•Execute requisition•Source of goods•Receipt and acceptance•Disbursement•Contract close-out

Assessable Unit Lead/Team CAPT James PoindexterBert Hovermale

Assessable Unit Support Kevin Norman – [email protected] Mackey – [email protected]

FY12 Q1 Obligations $ 390M





FY12 FY13 FY14


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Travel 4 SEP 2012



3 DEC 2012


1 APR 2013




1 JUL 2013


3 SEP 2013






Key Considerations when Auditing Contracts

Making Accurate Payments: An auditor will want to validate that an organization has the proper procedures in place to ensure that payments made for contracted goods or services are for the proper amount, are recorded to the proper accounting period, and that there are controls in place to properly authorize all payments.

Proper Accounts Payable Cut-Off: Auditors will specifically review goods or invoices receipted around financial reporting cut-off periods (end of quarter, end of year) to ensure that accounts payable reported at cut-off dates are accurate, represent valid amounts due to vendors, and recorded in the correct period.

Anti-Deficiency Act Considerations: Auditors will perform specific procedures to ensure that disbursements can be traced back to their corresponding obligations, and that they don’t exceed those obligations, that those obligations don’t exceed commitments, and that commitments don’t exceed apportioned funding authority.


How an Auditor willAudit Contracts



Review that commitments have been properly authorized, including a funding authority check to ensure against over-obligation of funds

Review of proper separation of duties for receipt and acceptance of invoices for disbursement

Review of controls in place to match disbursements to obligations

Review of proper authorization of any modification or de-obligation (contract closeout)


Review support of commitments by matching to SF2276 or similar

Match amounts on contracts to obligation in STARS-FLSupport disbursement amounts by checking against invoices

Contracts Administration at Navy Medicine


Business process is well documented, with few gaps. There are some areas where roles are not well defined, such as receipt of goods.

System controls related to Wide Area Work Flow (WAWF), Funds Administration and Standardized Document Automation (FASTDATA), and Standard Procurement System (SPS) are an area that need additional focus; may need more information on user access and profile controls. Basic controls are in place.

We need better visibility over DFAS financial processes to better understand the controls in place to ensure that obligations and disbursements are recorded accurately and completely.

Areas of higher risk include unauthorized commitments, SPS deployment and use, and the use of Non-DoD contracts or assisted contracts.

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




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. 36



Path ForwardHave a conversation and come to agreement on the following:

What constitutes adequate proof of receipt documentation: For supplies and equipment? The packing slip For services? Timesheets for PSCs per COR SOP section 3.2.4,

page 69 Check invoicing clause in the contract for any special

requirements Where and in what format should it be stored? How long should you keep it? What do you need to make this happen? What does the COR SOP say (section 3.2.4, page 69)?

Document the conversation and take the agreed upon action

37


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. 38


Inadequate documentation to support Closed Contracts

Path ForwardThe Contracts Administration Assessable Unit Team will develop a “due diligence standard” that describes the efforts required of the contract closeout team to obtain contractor consent before consent is presumed. Revise the Contract Closeout SOP to make the following steps clear:

CHECK to see if there are still funds on the contract DEOBLIGATE any remaining funds using the SF-30 and procedures in

the SOP CHECK AGAIN to ensure the deobligation was posted correctly COMPLETE the Contract Completion Statement (DD 1594) using the

procedures in the SOP

Contracting officers must ensure there is a properly completed SF 1594 in every closed contract.

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Questions?

40


Symposium

Other Key Audit Issues

June 4th, 2012


Other Key Audit Areas & Issues

Context FY2014 is the deadline for DoD to assert audit readiness for its

Statement of Budgetary Resources (SBR) (business processes) Navy Medicine is working on ten assessable units in total We have covered three and will now discuss audit issues

identified in other areas.


identified in successfully asserting Audit Readiness in for Navy Medicine. Solutions will be proposed for visibility and discussion where applicable.

Outcome An understanding of the status of other key audit issues,


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Material Weaknesses and Other Audit Issues

Material Weakness 1: Unfilled customer orders are not being recorded for Federal and Non-Federal Receivables

Material Weakness 2: Receivables not recorded until collections are received for Federal/Non-Federal Receivables and RWO-P transactions

Material Weakness 3: Supporting documentation for the disbursements associated with RWO-Grantor transactions is not adequate or missing

Other Audit Issues: DD577 Policy, Usage & Retention Document Retention & Audit Response to Document

RequestsFOR OFFICIAL USE ONLY

43


Unfilled customer orders are not recorded

Issue Detail An amount for unfilled customer orders is not recorded in

STARS-FL Recording an amount for unfilled customer orders establish

reimbursable authority for the Activity Not recording unfilled customer orders means that a cost

transfer is necessary at the time of collection This is a departure from GAAP and the audit standards

Impact on Audit Readiness Authority to provide services is not reflected on the financial

statements timely “Change in Unfilled Customer Order" line item on the SBR is

materially misstated44


Unfilled customer orders are not recorded

Path ForwardDevelop formal Corrective Action Plan(s)Potential Solutions:

Federal Receivables: Consider changing the process to have customers

prepay for services with a reconciliation at year-end

Non-Federal Receivables: Evaluate the ability to derive and record expected

authority from services covered by OHI

45


Receivables are not recorded until collections are received

Issue Detail Account Receivable amounts are not recorded in STARS-

FL until collections occur Various DoD and TMA policies provide conflicting

guidance and that do not satisfy accounting standards DOD Comptroller policy states all DHP-funded activities

should record a receivable when a claim is established This is a departure from GAAP and the audit standards

Impact on Audit Readiness Accounts receivable balances are not recorded or are not

recorded in the proper accounting period The SBR is materially misstated

46


Receivables are not recorded until collections are received

Path ForwardDevelop formal Corrective Action Plan(s)Potential solutions may vary between Federal and Non-Federal processesSolution should include two key phases:

Phase One: Address guidance conflicts and deficiencies to establish a GAAP compliant, achievable, sustainable ‘to-be’ business process

Phase Two: Develop plan for implementing ‘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 PMO47


Lack of supporting documentation for RWO

disbursements

Issue Detail RWO disbursements are initiated by the Performer agency

and processed by DFAS with minimal direct Navy Medicine oversight

RWO disbursements are being made without supporting documentation for the receipt of goods/services

A process to verify correct recording of RWO disbursements is not currently defined or in place

Disbursements related to RWO-G were $36 Million in Q1 of FY12

Impact on Audit Readiness Transactions cannot be validated by an auditor

48


Lack of supporting documentation for RWO

disbursements

Path ForwardDevelop formal Corrective Action Plan(s)Potential solutions must include:

Standardized and accessible key supporting documents for disbursements

Coordination with trading partners to ensure that documentation includes a valid quantified measure of cost for services provided

A defined process to obtain and review supporting documents from service providers

49


Lack of consistent policy for

DD-577 usage & retention

Issue Detail The DD-577, Appointment Record, is used to identify and

maintain a record of certifying and accountable officers DD-577 usage is generally high across Navy Medicine

Activities Navy Medicine does not have a standard policy for the use,

management and retention of the DD-577

Impact on Audit Readiness Authorization of transactions by accountable officers’ will

be a key measure of auditability for each business process within Navy Medicine

Naval Audit Service audit readiness spot checks included reviewing DD-577s for all transactions selected

50


Lack of consistent policy for

DD-577 usage & retention

Path ForwardDevelop formal Corrective Action Plan(s)Potential solutions include:

Developing and implementing Navy Medicine Guidance for DD-577s

Define all roles requiring a DD-577 Determine retention requirements and

responsibilities Identify the renewal process, including

considerations for change of activity leadership Create a standardized annual review process

51


Inconsistent Documentation Retention

& Response

Issue Detail DOD, DON, TMA, and others have provided inconsistent

and conflicting guidance on document retention A standard process for the maintenance and retrieval of

documents in response to an audit does not exist Inconsistent document retention methods and practices

across Navy Medicine

Impact on Audit Readiness Providing supporting documentation for testing is critical

to a financial statement audit DOD FIAR has highlighted availability of audit

documentation as a potential audit deal breaker

52

Documentation Request Results


Business Processes Included: Contracts Administration Civilian Payroll

486 Total Items Requested

Business Processes Included: Contracts Administration Non-Federal Receivables Reimbursable Work Orders

(G & P) Travel Funds Management

681 Total Items Requested


Inconsistent Documentation Retention

& Response

Path ForwardDevelop formal Corrective Action Plan(s)Potential solutions include:

Key Supporting Document matrix (created by execution code for each SBR assessable unit)

Navy Medicine specific document retention policy Developing a standardized process for documentation request

response, including chain of command and response timeline requirements

Consideration for an electronic data repository solution

54


Questions?

55

Moving Forward

Assessable Unit presentations on Tuesday and Wednesday will discuss more identified deficiencies in depth, with a specific focus on actions that regions and activities can take to remediate potential audit issues.

The Audit Readiness Team at BUMED HQ will need continued support from regions and activities related to the following tasks: Development of audit ready solutions to be implemented via

formal Corrective Action Plans. Timely response to testing documentation requests.

We need support from each and every one of you to promote the change to a culture of auditability within Navy Medicine.


Documents

Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Key Audit Issues in Civilian Payroll June 4 th, 2012