US Army Corps of Engineers Civil Works Audit: Journey to an Opinion Briefing for: ASMC PDI National Capital Region March 6, 2008

Agenda Audit History Key Assertion Milestones Assertion Process - Key Dates FY 2006 Audit FY 2007 Audit Lessons Learned

USACE Audit History FY93 to FY96 – AAA issued Disclaimers for all statements FY97 – AAA issued Unqualified Opinion on Southwest Division statements FY98 to FY00 – AAA issued Disclaimers for all 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

Key Milestones to Readiness June 9, 2004 – DoDIG/USACE Memorandum of Agreement (MOA) on support for older assets October 2004 – AAA Validation Review of “Other Statements” April 2005 – CG’s “Get Well Plan” November 2005 – AAA Validation Review of Balance Sheet December 15, 2005 – USACE Assertion of Readiness

DoDIG/USACE MOA Support for Older Assets Purpose: develop alternative methods to support the acquisition and capitalized improvements for real and personal property Signed June 9, 2004 by DoDIG 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)

FY2005 “CFO Get Well Plan” Identify Regional CFO lead for CFO Compliance Train regional Project Delivery Team (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 completed MSC/Center Commanders assert MSC readiness to CG NLT 30 Sep 05 AAA/HQUSACE validation reviews at selected Districts

Validation Process Non Balance Sheet (Completed October 2004) Performed by AAA Reviewed all business cycles (Purchase, Billing, Budget, and Payroll cycles.) Balance Sheet (Completed November 2005) Review of CFO Balance Sheet corrective actions Both conclusions supported assertion of readiness.

Assertion of Readiness Timeline 8 December 2005 – USACE Audit Committee unanimously recommended FY 2006 audit 16 December 2005 – LTG Strock , Chief of Engineers, approved and signed assertion package 2 February 2006 – Assertion package endorsed by Review and Prioritization Committee 15 February 2006 – Executive Steering Committee (ESC) briefed on assertion package 16 March 2006 – ESC approved USACE assertion to move forward with FY 2006 audit 20 March 2006 – Request for proposal released to contractors 28 April 2006 – Contract awarded to PwC 15 May 2006 – Entrance conference and audit kickoff ·   USACE had hoped to move into audit in this area but based on DODIG validation some work is left to be done. DODIG Found while progress is being made we still had outstanding issues to correct in the PP&E areas.  Corps /DODIG have agreed on appropriate corrective actions for Balance Sheet. Most open issues deal with PP&E (which represents about 80% of the Balance Sheet.)  Corps goal is to have all corrective actions done and internally validated by September 30, 2005.  CG has signed out a “get well plan” emphasizing internal checks for readiness and additional training for the districts. DODIG continuing to work with USACE and upon completion DODIG will validate corrective actions DODIG validation would set Corps up for FY 2006 audit of the Balance Sheet. USACE had received $7M in appropriation for FY 2005 audit which will be used upon readiness.

FY 2006 PwC Audit Facts PwC started work in May 2006 ended February 2007 Several subcontractors Morgan Franklin (PPE), Grant Thornton (CIP and Payroll), Reznick (Accounts Payable) 130 – 200 DoDIG and Team PwC auditors Numerous Corps support staff (all levels) DoDIG provided oversight and “opinion issuer” Extensive systems security review of CEFMS 14,616 sample items tested ·   USACE had hoped to move into audit in this area but based on DODIG validation some work is left to be done. DODIG Found while progress is being made we still had outstanding issues to correct in the PP&E areas.  Corps /DODIG have agreed on appropriate corrective actions for Balance Sheet. Most open issues deal with PP&E (which represents about 80% of the Balance Sheet.)  Corps goal is to have all corrective actions done and internally validated by September 30, 2005.  CG has signed out a “get well plan” emphasizing internal checks for readiness and additional training for the districts. DODIG continuing to work with USACE and upon completion DODIG will validate corrective actions DODIG validation would set Corps up for FY 2006 audit of the Balance Sheet. USACE had received $7M in appropriation for FY 2005 audit which will be used upon readiness.

FY 2007 PwC Audit Facts PwC started in March 2007 ended December December 2007 No subcontractors 50 – 60 DoDIG and Team PwC auditors Limited Corps support staff Extensive systems security review of CEFMS 4,396 sample items tested

Material Weakness’s Entity-Wide Controls - Quality Assurance/ Risk Assessments and Monitoring Property, Plant and Equipment Placing assets in service Supporting documentation issues Reconciliation controls Accounts Payable and Receivables Accruals, Cost Share, Long Term Agreements Contingent Liabilities Katrina disclosures Environmental Liabilities FY08-10 CCG Chapter 2 - Resources and Chapter 3 - CMR Metrics Files on Corps Intranet (17 Aug 07) Chapter 2 - Resources Updates Include:  Manpower, ED&M, PRIP, Support to Nationalized Employees, NSPS, MP Sustainable Design and Development, CW Value Engineering/Value Management, CW Enterprise Geographic Information System, and CECI Staff Support Services. Chapter 3 – Identifies USACE Measures of Success (metrics) that will be followed during Fiscal Year 08.

Report Status DoDIG will issue Qualified opinion for FY 2006 & 2007 (anticipated March 2008) Qualifier involves Property Memorandum of Agreement Working to resolve qualifier in 2Q08 DoDIG will review 100% of top 300 projects Upon completion Qualifier will be resolved

Audit Lessons Learned Know the rules of audit before asserting Don’t get a late start on a 1st year audit (10-12 months necessary) Funding is a major issue to consider for audit planning Ensure audit standards of success are clear between the agency, IPA and IG Takes an extraordinary amount of time and commitment from management at all levels USACE Audit Committee meets on a monthly basis to ensure audit issues are addressed timely and audit stays on schedule.

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