USACE Perspectives on Asserting Audit Readiness . USACE Perspectives on Asserting Audit Readiness AMSC National Capital Region Mini-PDI 9 March 2006 Mike Walsh, CPA Finance and Accounting Officer HQUSACE 202-761-1858 Michael.E.Walsh@hq02.usace.army.mil

Purpose To provide an overview of the CFO Act requirements and discuss the FY 2006 USACE assertion of audit readiness.

Agenda CFO Act Overview USACE CFO Audit Discovery Phase Validation Phase Assertion of Readiness USACE Lessons Learned

CFO Act Overview

Chief Financial Officers Act of 1990 Established agency Chief Financial Officers Required Annual submission of audited financial statements. Agencies to develop and maintain an integrated accounting and financial management system. Integration of accounting and budgetary information. Major Goals Provide quality information for management. Improve financial systems and accounting data. Enhance internal controls.

Government Management Reform Act of 1994 Sister act to CFO Act Required all Federal agencies to submit audited financial statements, beginning 1996. Anticipated benefits: Reduce inaccurate financial data Improve financial management reporting

Federal Financial Management Act of 1996 Requires Federal Agencies to: Comply with Federal System requirements and accounting standards. Apply US Government Standard General Ledger at the transaction level Assess internal management controls

Presidents Management Agenda Improve Financial Management Getting to Yellow: Unqualified Audit opinion. Meet accelerated reporting deadlines. No significant Anti-Deficiency violations. No material internal control weaknesses. Getting to Green: Meet all yellow criteria plus; Financial information used by management to inform decision making and continuously expand the scope of its routine data use.                                                                                                                                                                                                                                                                                                             

Presidents Management Agenda Current Status Progress USACE RED YELLOW* Overall (26 – Agencies) 8/26 - Green 1/26 - Yellow 17/26 - Reds 18/26 - Green 7/26 - Yellow 1/26 – Red

The Goal…….. Quality Information for Decision-Makers. Cleaning up our books will lead to greater credibility with Congress, Customers and the Public. Integrating financial and functional systems is the key to quality information. Quality information will enable better decision making and resource management. Notes

USACE CFO Audit

Reconciles Obligations Financial Statements US Army Corps of Engineers PRIVATE SECTOR GOVERNMENTAL Assets Liabilities OE/SE Balance Sheet Balance Sheet Assets Liabilities Net Position Revenues -Expenses Net Income Income Statement Cost -Revenues Net Cost of OPNS Statement of Net Cost Cash Flow Analysis Statement of Changes in Net Position Changes from Beginning of FY No equivalent Government Statement Stockholders Equity Budget Authority in, Obligations incurred, Outlays Statement of Budgetary Resources No Private Sector Equivalent Statement of Financing Reconciles Obligations incurred to Net Cost One Corps Serving The Army and the Nation

Types of Audit Opinions Unqualified - Statements are fairly presented and materially correct (favorable). Qualified - Statements are fairly presented and materially correct except for stated conditions (favorable). Disclaimer - Auditors unable to determine if information is fairly presented (not favorable). Adverse - Statements aren’t fairly presented or materially correct (not favorable).

USACE Audit History FY93 to FY00 – AAA issued disclaimers for all statements. FY97 – AAA issued unqualified opinion on pilot test of Southwest Division statements. FY01 to FY05 – DoDIG took over audit responsibility and issued disclaimers. Issued numerous reports citing problems in CIP, Building and Structures, Equipment, Depreciation, Accounts Receivables and Payables, FBWT, Compilation and Systems Security.

DODIG Audit Phases Discovery and Correction Phase Develop improvement plans; implement corrective actions; establish audit committees; develop systems strategy. Validation Phase Obtain comment from OIG; document processes; identify controls and systems; ensure auditable universe of transactions and availability of supporting documents. Assertion Results of validation and reports; agree with engagement and management representation letters. Assessment OIG Oversight; Independent Public Auditors (IPA). Audit OIG Oversight; IPA.

Discovery Phase

Discovery Phase (Major Hurdles) Fully Integrated Accounting System Buildings and Structures Construction in Progress Land Funds Balance With Treasury Accounts Receivable Accounts Payable Financial Statement Compilation

Corps Financial Management Real time management and funds control CEFMS Source data entry Electronic Signatures for less paper & better internal control. Multi-level processing Compliance with Statutory and Regulatory requirements and the elimination of separate accounting departments Civil Corps of Engineers Financial Management Systems Military Network Revolving Fund Reimbursable CEFMS DATABASE

DODIG MOA on Support for Assets Purpose: develop alternate methods to support the acquisition and capitalized improvements for real and personal property. Signed June, 9, 2004 by both IG and USACE in coordination with GAO. Allowed for use of other internal documentation to support values of older assets (i.e. engineer estimates and legacy system conversion spreadsheets.)

CFO Information Papers HQUSACE developed CFO info papers to address each DODIG audit deficiency. 11 topic areas. Ensure field activities know what the requirements are. Track progress on corrective actions. Ensure USACE and DODIG on same page regarding required corrective actions. Used monthly feedback to manage process and ensure continued Command oversight.

FY2005 “CFO Get Well Plan” Identify Regional CFO lead for CFO Compliance. Train regional PDT leaders. Regional CFO Leaders form Regional PDTs to ensure all districts complete corrective actions NLT 31 Jul 05. Regional PDT’s validate corrective actions are fully complete. MSC/Center Commanders assert MSC readiness to CG NLT 30 Sep 05. AAA/HQUSACE validation reviews at selected Districts.

Validation Phase

AAA Validation Review of “Other Statements” AAA completed validation review of the non Balance Sheet “other statements” in October 2004. Plan developed collectively with USACE, DODIG and OSD(C). AAA Validation Objective: Review of selected Civil Works financial statements (Statements of Net Cost, Changes in Net Position, Budgetary Resources, and Financing) to assist management in determining whether those statements are ready for an assessment.

AAA Validation Review of “Other Statements” AAA areas of review: The Budget Cycle. The Purchasing Cycle. The Billing Cycle. The Payroll Cycle. Financial Statement Reporting.

AAA Validation Review of “Other Statements” AAA validation conclusion: “Our review didn’t disclose any material deficiencies that would preclude an assessment of the financial statements……. Although we found some weaknesses in controls and posting errors in our sampled transactions, we believe that these weaknesses and errors wouldn’t materially affect the financial statements.”

AAA Validation Review “Balance Sheet”   AAA completed validation review of the Balance Sheet in November 2005. AAA Audit Objective: Has the Corps corrected the nine balance sheet deficiencies identified from previous audits? AAA visited 6 USACE districts to ensure all corrective actions were completed. USACE HQ RM added 2 other sites.

AAA Validation Review “Balance Sheet”   AAA validation conclusion: “Based on our review, the Corps has corrected all balance sheet deficiencies with the exception of the Accounts Payable/Accruals issue area.” % of sample unsupported: CIP - .9% A/R - .02% A/P- 4.2% * Equipment - .1% Buildings and Structures - .2% Land - .1% * USACE has issued guidance to require standard support form for all accruals.

Assertion Phase

Assertion Package Explanation of corrective actions Organization charts FISCAM reviews Description of all hardware and software Description of financial reporting process IT network description Systems documentation Systems certifications Assertion letter Cycle memos of all business process’s General ledger and subsidiary ledgers Evidential matter Summary of validation review Completion of all Financial Improvement Plans  

USACE Audit Assertion Key Events 30 Sep 2005 - All District / Division Commander submitted assertion letter that individual Command had completed actions. November 2005- Positive results on AAA validation reviews. 8 December 2005 - Recommended unanimously by USACE Audit Committee (also includes DODIG and OSD.) 16 December 2005 – Assertion package signed by USACE. 2 February 2006 - Package endorsed by Review and Prioritization Committee. 15 February 2006 - ESC approved USACE assertion package.  

USACE Lessons Learned Must Haves: Integrated financial management system. Command emphasis. Teaming with the auditor. Standardize business processes. Strong audit committee. Proper training at field level. Develop timeline and stick to it.

Compliance is Not an Option CFO Compliance Needs You Notes Accountants Can’t Do It Alone !