Bureau of Medicine and Surgery
2012 Navy Medicine Audit Readiness Training Symposium
Reimbursable Work Orders (RWO):
Path to Audit Readiness
June 5th – 6th, 2012
Audit Readiness
Context

Navy Medicine must assert audit readiness of its RWO-Grantor and RWOPerformer (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 RWOPerformer.
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.
FOR OFFICIAL USE ONLY
2
RWO Scope/Definition
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 Howell
Mike Brandt
Eric Egger
Mel Becker
Assessable Unit Support
Bhavin Patel – bhavpatel@deloitte.com
Chaz Swingle – cswingle@deloitte.com
Q1 FY12 Obligations
RWO-Grantor: $109 Million
Q1 FY12 Unfilled Customer Orders
RWO-Performer: $44.2 Million
FOR OFFICIAL USE ONLY
3
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
4
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
5
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.
MW
SD
CD
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
6
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 Standard
Operating Procedure (SOP) is in place that meet financial reporting requirement
FOR OFFICIAL USE ONLY
7
Reimbursable Work Order - Grantor
FOR OFFICIAL USE ONLY
8
SOPs: Your Map to Audit
Readiness

The internal controls
required for RWO-Grantor
are in the Support
Agreements: Receiver-Side
SOP
Follow the SOPs ALL THE TIME and TO
THE LETTER!
SOP Questions/Feedback:
BUMED-SOP@med.navy.mil
FOR OFFICIAL USE ONLY
9
KCO1: Support Agreement
MW
Control Objective

Funding documents contain sufficient detail on goods/services
requested and have a valid, compliant and legal Support Agreement
(DD-1144) on file
SD
CD
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 abuse
Command 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
10
KCO2: Sufficient Budget Authority
MW
Control Objective

Commitments and obligations do not exceed budget authority
Impact on Audit Readiness


SD
CD
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 check
Command Action Required


Perform funds check and commit funds in FASTDATA (or STARS-FL if not
on FASTDATA)
Non-Research & Development Activities should use FASTDATA
FOR OFFICIAL USE ONLY
11
KCO3: Timely Recording of
Obligation
MW
Control Objective

All obligations are recorded in correct period
Impact on Audit Readiness


SD
CD
Recording obligations in incorrect period could improperly state “Obligations
Incurred” and “Unobligated Balance” on SBR
No check to ensure obligations are posted in correct period
Command 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
FOR OFFICIAL USE ONLY
12
KCO4: Accurate Recording of
Obligation
MW
Control Objective

All obligations are recorded accurately
Impact on Audit Readiness


SD
CD
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.
FOR OFFICIAL USE ONLY
13
KCO5: Valid Obligations
MW
Control Objective

SD
Obligations are valid
Impact on Audit Readiness

CD
Recording invalid obligations could improperly state “Obligations Incurred”
and “Unobligated Balance” on SBR
Command 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)
FOR OFFICIAL USE ONLY
14
KCO6: Timely Recording of
Accruals & A/P
MW
Control Objective

All accruals & A/P are recorded in the correct period
Impact on Audit Readiness


SD
CD
Recording accruals & A/P could improperly state “Obligations Incurred” and
“Unpaid Obligations” on SBR
IPAC posts A/P after disbursement
Command Action Required

BUMED will work on developing a corrective action to ensure payables are
recorded in the correct period
FOR OFFICIAL USE ONLY
15
KCO7: Accurate Recording of
Accruals & A/P
MW
Control Objective

All accruals & A/P are recorded accurately and invoices are valid
Impact on Audit Readiness


SD
CD
Recording accruals & A/P could improperly state “Obligations Incurred” and
“Unpaid Obligations” on SBR
Lack of documentation to support posted A/P
Command Action Required

BUMED will work on developing a corrective action to ensure payables are
recorded accurately and invoices are valid
FOR OFFICIAL USE ONLY
16
KCO8: Timely Recording of
Disbursements
MW
Control Objective

All disbursements are recorded in the correct period
Impact on Audit Readiness


SD
CD
Recording disbursements in the incorrect period could improperly state
“Gross Outlays” on SBR
Lack of support for IPACs is a Material Weakness
Command Action Required

BUMED will work on developing a corrective action to ensure disbursements
are recorded in the correct period
FOR OFFICIAL USE ONLY
17
KCO9: Disbursements are Valid &
Accurately Recorded
MW
Control Objective

All disbursements are valid and recorded accurately
Impact on Audit Readiness


SD
CD
Recording invalid or inaccurate disbursements could improperly state “Gross
Outlays” on SBR
Lack of support for IPACs is a Material Weakness
Command Action Required

BUMED will work on developing a corrective action to ensure disbursements
are valid and recorded accurately
FOR OFFICIAL USE ONLY
18
KCO10: Review of Obligations and
Accruals
Control Objective

MW
All obligations and accruals are validated and adjusted
Impact on Audit Readiness


SD
CD
Unadjusted obligations could improperly state “Obligations Incurred” and
“Unobligated Balance” on SBR
Unadjusted accruals could improperly state “Obligations Incurred” and
“Unpaid Obligations” on SBR
Command 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
FOR OFFICIAL USE ONLY
19
KCO10: Annual Review
Annual 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
FOR OFFICIAL USE ONLY
20
RWO-Grantor:
Key Supporting Documentation
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
21
Lack of Supporting Documentation
for RWO-G Disbursements
Issue 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.
FOR OFFICIAL USE ONLY
22
Lack of Supporting Documentation
for RWO-G Disbursements
Path Forward

The 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.
FOR OFFICIAL USE ONLY
23
Reimbursable Work Order – Performer
(Non-Uniform Business Office)
FOR OFFICIAL USE ONLY
24
KCO1: Timely Recording of
Unfilled Orders
MW
Control Objective

All unfilled customer orders are recorded in the correct period
Impact on Audit Readiness


SD
CD
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
FOR OFFICIAL USE ONLY
25
KCO2: Valid/Accurate Recording
of Unfilled Orders
MW
Control Objective

All unfilled customer orders are valid and recorded accurately
Impact on Audit Readiness


SD
CD
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
FOR OFFICIAL USE ONLY
26
KCO3: Obligation of Reimbursable
Authority
MW
Control Objective

Obligations incurred in performing customer work do not exceed
reimbursable authority
SD
CD
Impact on Audit Readiness


Audit requires report on legal compliance (ADA)
Lack of controls to ensure obligations do not exceed reimbursable authority
Command 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 entities
FOR OFFICIAL USE ONLY
27
KCO4: Timely Recording of
Accruals and A/R
MW
Control Objective

All accruals and/or A/R are recorded in correct period
Impact on Audit Readiness


SD
CD
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 collection
Command Action Required

BUMED will work on corrective action to address STARS-FL posting logic
FOR OFFICIAL USE ONLY
28
KCO5: Valid/Accurate Recording
of Accruals & A/R
MW
Control Objective

All accruals and A/R are valid and recorded accurately
Impact on Audit Readiness


SD
CD
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
FOR OFFICIAL USE ONLY
29
KCO6: Timely Recording of
Collections
MW
Control Objective

All collections are recorded in the correct period
Impact on Audit Readiness


SD
CD
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 costs
FOR OFFICIAL USE ONLY
30
KCO7: Valid/Accurate Recording
of Collections
MW
Control Objective

All collections are valid and recorded accurately
Impact on Audit Readiness


SD
CD
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
FOR OFFICIAL USE ONLY
31
KCO8: Adjustments
Control Objective

MW
All expired orders, unfilled orders, uncollected A/R are validated
and adjusted
SD
CD
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
FOR OFFICIAL USE ONLY
32
KCO8: Annual Review
Annual Review Checklist


Required by BUMEDINST 7050.1B
Tracked quarterly in Spotlight Metrics
FOR OFFICIAL USE ONLY
33
RWO-Performer: Key Supporting
Documentation
Execution
Code
Description of Transaction
Key Supporting
Documentation
121
Establish reimbursable authority
DD 448-2, NAVCOMPT
2275, NAVCOMPT 2276A
201
Billing
none
202
Collection
none
FEDERAL vs. NON-FEDERAL
Non-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
34
Lack of Supporting Documentation
for RWO-P A/R & Collections
Issue 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.
FOR OFFICIAL USE ONLY
35
Lack of Supporting Documentation
for RWO-P A/R & Collections
Path Forward

The 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.
FOR OFFICIAL USE ONLY
36
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
The key to audit readiness is in YOUR hands!
FOR OFFICIAL USE ONLY
37
Questions?
FOR OFFICIAL USE ONLY
38