Bureau of Medicine and Surgery
2012 Navy Medicine Audit Readiness Training Symposium
Civilian Payroll: 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 Civilian Payroll 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 Civilian Payroll.
Outcome

An understanding of the status of the Civilian Payroll 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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Civilian Payroll Scope & Definition
Definition
Includes hiring, time and attendance,
payroll, accrual, reconciliation, personnel
changes, separation and retirement of
civilian personnel
Assessable Unit Lead/Team
Ms. Kimberly McIntire
Ms. Mitzi Cruz
Ms. Terry Carey
Assessable Unit Support
Bhavin Patel – bhavpatel@deloitte.com
Chaz Swingle – cswingle@deloitte.com
Q1 FY12 Disbursements
$313 million
FOR OFFICIAL USE ONLY
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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
FOR OFFICIAL USE ONLY
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Key Control Objectives
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
Need for Resource
1
Salary and benefits for new hires do not exceed funding authority
Records Management (Personnel Action)
2
Civilian personnel actions are valid (authorized/approved transactions
supported by requests for personnel action) and recorded accurately
3
All civilian personnel actions are recorded timely
4
Personnel and payroll records are adequately secured and
appropriately safeguarded in compliance with established law and
regulations
FOR OFFICIAL USE ONLY
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Key Control Objectives
KCO #
KCO Description
Time and Attendance
5
Time and Attendance information is valid (authorized/approved
transactions supported by timesheet) and is recorded correctly
6
All Time and Attendance information is recorded timely
Records Processing
7
Civilian payroll salary and benefit information is accurately calculated
and paid based on correct data processing
8
Payroll obligations, accruals, and disbursements are valid
(authorized/approved transactions supported by pay file, disbursing
voucher, etc.) and are accurately recorded and classified in the General
Ledger(s)
9
All payroll obligations, accruals and disbursements are recorded in the
General Ledger(s) timely
FOR OFFICIAL USE ONLY
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Key Control Objectives
KCO #
KCO Description
Adjustments
10
All obligations and accruals are reviewed for validity, and adjusted as
necessary
Information Technology
11
User access is consistent with assigned rights and privileges in
accordance with Federal Information System Controls Audit Manual
(FISCAM) requirements
FOR OFFICIAL USE ONLY
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Key Supporting Documentation
KSDs – Documentation retained to support individual financial transactions and
accounting events.
Execution Description of Transaction
Code
Key Supporting
Documentation
• OPTAR)amount in the
BUMED Annual Planning
Figure (BAPF)
540
To record an obligation for
Civilian Labor
510
To record an accrual for Civilian • No Key Supporting
Labor
Documentation
610
To record a disbursement for
Civilian Labor
• LXL3935 – Labor Report
• LXL3951 – Fringe Benefits
Report
FOR OFFICIAL USE ONLY
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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.
FOR OFFICIAL USE ONLY
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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
FOR OFFICIAL USE ONLY
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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
FOR OFFICIAL USE ONLY
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Lack of 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.
Reconciliation gives assurance that what was paid to employees is accurately
reflected in financial statements.
Impact on Audit Readiness



This reconciliation is utilized to detect any errors that may have occurred
during the system interface between STARS-FL and DCPS.
Errors might include incomplete file transmission, duplicate file transmission,
or rejection of certain data detail due to errors in file coming from DCPS.
Such errors might cause misstatements of the Gross Outlays line item on the
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SBR.
FOR OFFICIAL USE ONLY
Lack of Reconciliation in
Payroll Processing
Path Forward

In conjunction with the Navy Medicine Standard Operating Procedure (SOP)
team, the Civilian Payroll Audit Readiness team conducted a week long
Civilian Payroll working group, the purpose of which was to develop a
standard reconciliation process to address the identified material weakness.
The developed standard process is scheduled to be documented in an SOP to
be drafted by August 2012.
Potential Activity Actions
•
•
Participate in development of Civilian Payroll SOP via actively submitting
change requests and feedback where possible.
Once complete, 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) in
accordance with the SOP..
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FOR OFFICIAL USE ONLY
Time & Attendance Inconsistencies
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.
Lack of standardized processes creates a situation in which controls can not
be adequately assessed. This increases the risk that time and attendance may
be reported incorrectly, and that payroll disbursements may be based on
incorrect time and attendance amounts.
Impact on Audit Readiness

Time and Attendance accuracy affects every disbursement recorded for
Civilian Payroll. This means that we can not ensure that these amounts are
accurate and correctly stated in the ‘Gross Outlays’ line of the SBR.
FOR OFFICIAL USE ONLY
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Time & Attendance Inconsistencies
Path Forward
The Dept. of Navy has developed a high-level process for Civilian Payroll;
Navy Medicine supported creation of this process. Navy Medicine will update
the Time & Attendance Instruction to mirror this Navy process, at a much
more detailed level, and create a plan to guide activities in implementing the
new process.

Navy Medicine Civilian Payroll Process (Page 1 of 1)
1.
Work Hours
3.
Enter time into
SLDCADA
Navy Medicine
4.
Upload to DCAS
via SLDCADA
5.
Costs captured in
STARS
6.
End of Month
Navy Medicine Civilian Payroll Process (Page 1 of 1)
7.
Record Accruals
NME
Timekeeping
8.
DFAS makes payment
9.
Review Payment
10.
Employee receives
check
End
Navy Medicine Civilian Payroll Process (Page 1 of 1)
Employee
Timekeeping
START A
1.
Work Hours
3.
Enter time into
SLDCADA
Military Treatment Facility
Entry and Accounting
2.
Record Time
4.
Upload to DCAS
via SLDCADA
5.
Costs captured in
STARS
NMLC
6.
End of Month
7.
Record Accruals
8.
DFAS makes payment
9.
Review Payment
10.
Employee receives
check
End
Navy Medicine
Time &
Attendance
Corrective
Action Plan
Navy Medicine Civilian Payroll Process (Page 1 of 1)
Employee
Timekeeping
START A
1.
Work Hours
START A
1.
Work Hours
Entry and Accounting
2.
Record Time
3.
Enter time into
SLDCADA
4.
Upload to DCAS
via SLDCADA
5.
Costs captured in
STARS
6.
End of Month
7.
Record Accruals
8.
DFAS makes payment
9.
Review Payment
10.
Employee receives
check
Single Process
2.
Record Time
3.
Enter time into
SLDCADA
Military Treatment Facility
Entry and Accounting
Employee
Military Treatment Facility
Entry and Accounting
2.
Record Time
Military Treatment Facility
Employee
Timekeeping
START A
4.
Upload to DCAS
via SLDCADA
5.
Costs captured in
STARS
NMCSD
6.
End of Month
7.
Record Accruals
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8.
DFAS makes payment
9.
Review Payment
10.
Employee receives
check
End
FOR OFFICIAL USE ONLY
End
Other Civilian Payroll Deficiencies
Deficiency 1: Lack of Oversight over Service Providers
Deficiency 2: Variations in the New Hire Process
Deficiency 3: No Enterprise Standard Labor Data Collection and
Distribution Application (SLDCADA) Administrator
FOR OFFICIAL USE ONLY
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Lack of Oversight at
Service Providers
Issue Detail

There is a lack of oversight by BUMED over the service providers at Human
Resource Service Center (HRSC) and Defense Finance and Accounting
Service (DFAS)
Effect on Audit Readiness

Without validating transactions processed at service providers, there is a risk
for misstatements in the financial statements
Potential Activity Actions


Review SSAE-16 Service Audit Report for DCPS payroll processing
Ensure SF-52 is correctly processed by reviewing against final SF-50
FOR OFFICIAL USE ONLY
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No Enterprise SLDCADA
Administrator
Issue Detail

There is no enterprise SLDCADA administrator
Impact on Audit Readiness

Having an enterprise administrator allows standardization of control activities
and processes across the organization
Potential Activity Actions

Determine feasibly of an enterprise SLDCADA administrator
FOR OFFICIAL USE ONLY
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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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FOR OFFICIAL USE ONLY
Questions?
FOR OFFICIAL USE ONLY
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