Financial Improvement and Audit Readiness (FIAR): Past, Present, and Future 22 April 2015 Presented to: American Society of Military Comptrollers John Skober Branch Head, Financial Analysis Branch SPAWAR FIAR Manager Space and Naval Warfare Systems Command Christine Esparza SSC PAC Audit Readiness Coordinator Comptroller Staff and Support Code 11010 Space and Naval Warfare Systems Center - Pacific
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Financial Improvement and Audit Readiness (FIAR):
Past, Present, and Future
22 April 2015 Presented to:
American Society of Military Comptrollers
John Skober Branch Head, Financial Analysis Branch
SPAWAR FIAR Manager Space and Naval Warfare Systems Command
Comptroller Staff and Support Code 11010 Space and Naval Warfare Systems Center -
Pacific
2
Agenda
Past Statutory Requirements for Financial Audit OSD FIAR Strategy – “Waves” and the Financial Statements
Present General Fund Schedule of Budgetary Activity(SBA) Audit General Fund Assessable Unit – Segment Approach
Future April 2015 OSD FIAR Guidance – Notable Changes Navy Working Capital Fund (NWCF) FIAR Approach NWCF FIAR Plan of Action and Milestones (POAM) Audit Challenges (GF/WCF) Audit Impact on the Workforce
3
Statutory Requirements for Financial Audit ▼ 1982 Federal Managers’ Financial Integrity Act (FMFIA)
Requires agencies to establish, maintain and assert to the effectiveness of internal controls
▼ 1990 Chief Financial Officers (CFO) Act Requires agencies to assess internal control and requires the audit of annual
financial statements ▼ National Defense Authorization Act (NDAA) of 2010
Directs OUSD (C) to develop the FIAR Plan to meet the requirements in FMFIA and the CFO Act and be audit ready no later than September 30, 2017
▼ National Defense Authorization Act (NDAA) of 2012 Establishes interim goal requiring the Statement of Budgetary Resources to be
validated as audit ready no later than September 30, 2014
Present Future Past
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▼ OSD FIAR Waves
▼ DOD Financial Statements Statement of Budgetary Resources Balance Sheet Statement of Changes in Net Position Statement of Net Cost
OSD FIAR Strategy – “Waves” Completed by FY2014 Completed by FY2017 Completed by 30 June 2016
Present Future Past
*Based on November 2013 OSD FIAR Guidance
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OSD FIAR Waves and Financial Statements
Present Future Past
FIAR Wave Statement of Budgetary Resources
Balance Sheet Statement of Changes in Net Position
Statement of Net Cost
We are here: Currently under audit of the FY15 SBA
*Based on November 2013 OSD FIAR Guidance
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Schedule of Budgetary Activity(SBA) Audit
Present Future Past
We buy stuff We do work for each other We move things and people We pay our people
Everything we do
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▼ We buy stuff Contract Vendor Pay (CVP) Military Standard Requisitioning & Issue Procedures (MILSTRIP)
▼ We do work for each other Reimbursable Work Order Grantor/Performer (RWOG/P)
▼ We move things and people Transportation of People (TOP) and Military Permanent Change of Station
(MILPCS) Transportation of Things (TOT)
▼ We pay our people Civilian Pay (CIVPAY) Military Pay (MILPAY)
General Fund Assessable Unit - “Segment” Approach
Present Future Past
The Navy's approach grouped transactions and processes with similar attributes into 'segments' to support auditability
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▼ Positives Process Segments were easier to identify controls activities and understand the
process flow when compared to an SBR line (e.g. Obligations incurred) ▼ Negatives
Difficult to establish the transaction universe by segment During the Reimbursable Work Orders and Contract Vendor Pay examinations,
auditors were not able to make a positive opinion due to transaction universe
Line Item: Obligations
General Fund Assessable Unit - Segment Approach
Present Future Past
Reimbursable Work Orders
Contract Vendor Pay
Transactions cannot be easily identified by segment but can be easily identified by Financial Statement Line Item
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▼ Wave 1 – Complete ▼ Wave 2 - Substantially complete, undergoing the initial SBA which does not include the balances brought forward. In
order to complete SBR wave 2, focus will be put on Balances brought forward as Assessable Unit ▼ Wave 3 – Due to shortness of time, services are being required to incorporate valuation into Wave 3. ▼ Wave 4 – Challenges that need to be addressed in wave 4
Approach to value re-worked and improved assets Implement business rules around co-located facilities (joint basing) and assets purchased by others (e.g., USMC aircraft) Identification of federal and non-federal transactions and capturing correct trading partner codes to support reconciliation Imputed Costs methodology (e.g. Occupancy costs for office space in a MILDep Facility) Determining environmental liabilities – ensuring completeness and documenting cost-to-complete factors, assumptions and
amounts Dependence on Service Provider Controls Infrastructure necessary to respond to audit team requests within 5 business days
April 2015 OSD FIAR Guidance – Wave changes
Completed by FY2014 Completed by FY2017 Completed by 30 June 2016
Present Future Past
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April 2015 OSD FIAR Guidance – Other Notable Changes
▼ Expanded priorities to include proprietary accounts and valuation of assets, liabilities, revenues, and costs
▼ Internal Controls Combined Internal Controls over Financial Reporting (ICOFR) and Information Technology (IT)
Controls Synchronized Guidance with Manager’s Internal Control Program (MICP)
▼ Audit Infrastructure necessary to respond to the audit ▼ Defined SBR beginning balances, material line items and financial reporting as assessable
units − Non-material line items (at consolidated level) included in an appendix
▼ Incorporated financial reporting risks, objectives and outcomes into one table for each financial statement line item
▼ Leveraging the work from prior Waves – Work in prior waves is expected to be leveraged for future efforts. OSD provides a financial statement to assessable unit cross walk Examples: Vendor Pay can be used to assert Accounts Payable on the balance sheet, Contract Pay can be used assert gross cost on Statement of Net Cost Civilian Pay can be used to assert Net Cost of Operations on Statement of Change in Net position
Present Future Past
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Prepare for Audit (Assertion)
Today
Assertion: Schedule of Budgetary
Activity
Audit: Schedule of Budgetary
Activity
Assertion: Existence &
Completeness of Assets
Assertion: All Financial Statements
Audit: All Financial Statements
Report to Congress on Full Financial
Statement Audit
2014 2015 2016 2017 2018 2019
Statement of Net Cost
Balance Sheet
Statement of Net Position
Notes: • The Schedule of Budgetary Activity (SBA) consists of
appropriations for a single fiscal year.
Prepare for Audit (Assertion)
Prepare for Audit (Assertion)
Prepare for Audit (Assertion)
Under Audit + Sustainment
Existence & Completeness of Assets Prepare for Audit (Assertion) Under Audit + Sustainment
Under Audit + Sustainment
Under Audit + Sustainment
Under Audit + Sustainment
Statement of Budgetary Resources Prepare for Audit (Assertion)
March 31, 2019 Sept. 30, 2017 June 30, 2016 Sept. 30, 2014
Department of the Navy Financial Improvement and Audit Readiness Milestones
Present Future Past
Working Capital Fund Statements Under Audit + Sustainment
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Learn from previous FIAR work to understand NWCF operating environment and prepare Corrective Action Plan (CAP) and testing approach
Navy Working Capital Fund (NWCF) FIAR Approach Ob
jectiv
es Build confidence in accuracy of material financial statement line items to support an assertion
Correct known issues and find additional issues in preparation for assertion testing
Phase 2: Business Process Testing
Phase 1: Research and Planning
Proceed to Line Item Assertion Testing when: • One to Two rounds of testing are complete
OR • All controls in scope pass at designated percentage
Most closely resembles an IPA audit of the financial statements
Creates an assertion package that is relatable to an external auditor
Transaction universe is tied-out at the line item-level, reducing data issues
Builds upon work done to-date using business segment construct
Focuses time and resources on business segments that are high risk of material misstatement
Considerations
Assert Financial Statements
Phase 3: Line Item Assertion Testing
Present Future Past O
bjec
tives
Act
iviti
es O
utco
mes
Proceed to Business Segment Testing when: • Processes are verified • Risks/Controls/Key supporting documentations are identified
• Testing Workbook is complete • CAPs are developed • List of known material weaknesses is complete
• Perform Statement to Process Analysis • Prioritize Accessible Units (AU)s • Prepare AU Strategy and Prioritization Document
• Validate Business Process Standardization (BPS)documentation reflects NWCF current operating environment
• Utilize existing work products: Systems Inventories Business Process Standards GF SBA Assertion Packages Independent Audit Exam results NWCF Financial Statements and Footnotes GF SBA matrices for KSDs, risks, and controls GF SBA testing workbooks
• Implement CAPs • Assess and Test Controls with a targeted testing methodology in which sampling is stratified by materiality, source system, or other key attribute
• Summarize Test Results • Identify and Evaluate Deficiencies • Evaluate Supporting Documentation • Develop additional CAPs based on test results
• Develop test plans: Control Substantive
• Transaction universe is driven by materiality analysis
• Tie out Line Item Transaction Universe
• Conduct testing of a random sample of the transaction population
• Identify and Evaluate Deficiencies • Evaluate Supporting Documentation • Summarize Test Results • Conduct root cause analysis • Develop Additional CAPs • Implement CAPs
Proceed to Post-Assertion Activities when: • Testing results for all line items meet FIAR Guidance criteria for assertion
Bypass business segment testing for lower materiality or low risk business
segments
Approved for public release
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NWCF FIAR Plan of Action and Milestones (POAM) Key Major Milestones Est. Completion *
Phase I – Research and Planning Systems Inventory: List April 2015
Systems Inventory: Matrix and System Process Flow Diagrams (initial) May 2015
Assessable Unit (AU) Prioritization & Strategy Document July 2015
Statement to Process Analysis September 2015
Data Reconciliation: GL transaction detail to field level trial balance August 2016
Phase II – Business Segment Testing Contract Vendor Pay (CVP) June 2015
Reimbursable Work Order – Grantor (RWO-G) July 2015
Reimbursable Work Order – Performer (RWO-P) August 2015
Military Standard Requisitioning & Issue Procedures (MILSTRIP) September 2015
Financial Statement Compilation & Reporting (FSCR) December 2015
Phase III – Line Item Testing Inventory (OM&S, SM) June 2015
General Equipment (GE) March 2016
Funds Balance with Treasury (FBWT) September 2016
Accounts Receivable (AR) September 2016
Accounts Payable (AP) February 2017
Audit Ready Financial Statements (Assertion) Data Reconciliation: Feeder system transaction detail to general ledger systems May 2017
Systems Inventory: Matrix and System Process Flow Diagrams (Final) September 2017
Submit Assertion Package to Office of Secretary of Defense (OSD) September 2017 *Dates subject to change