Bureau of Medicine and Surgery 2012 Navy Medicine Audit Readiness Training Symposium Travel: Path to Audit Readiness June 5 th -6 th, 2012

FOR OFFICIAL USE ONLY Audit Readiness Context  DoD is required to assert audit readiness for the Statement of Budgetary Resources (SBR) by the end of Fiscal Year As part of Navy Medicine’s audit readiness effort, the Travel 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 Travel. Outcome  An understanding of the status of the Travel 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. 2

Travel Scope & Definition FOR OFFICIAL USE ONLY 3 DefinitionIncludes authorization and payment for personnel and patient related travel Assessable Unit Lead/TeamDave Howell Mike Brandt Eric Egger Assessable Unit SupportBhavin Patel – Chaz Swingle – Q1 FY12 Obligations$10.4 Million

Audit Readiness Timeline FOR OFFICIAL USE ONLY 4 FY12FY13FY14 Assessable Units – Wave 2 Max Assertion Date Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 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 Assessable Unit Assertion Interim Progress Milestones (90 Days, 50 %, 75 %) Control Testing Time Period

Audit Readiness Process FOR OFFICIAL USE ONLY 5 TasksWork ProductsCompleted Document Assessable Units 1 Determine which key business processes are Assessable Units Process Narrative Process Flowchart Mar. 1st 2 Document Assessable Units through interviews and observation Assess Internal Controls 3 Determine control objectives for each Assessable Unit Control AssessmentMar. 1st 4 Highlight internal controls in process documentation 5 Assess whether controls are effective in meeting control objectives Assess Supporting Documentation 6 Determine what supporting documents exist for each transaction type Key Supporting Document Matrix Apr. 16th 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 Deficiencies ListingApr. 30th 9 Prioritize deficiency list based on audit criteria

Key Control Objectives (KCOs) KCO #KCO Description Authorization 1Amounts do not exceed funding authority 2All obligations are recorded accurately and are valid 3All obligations are recorded in the proper period Reimbursement 4All disbursements are recorded accurately and are valid 5All disbursements are recorded in the proper period FOR OFFICIAL USE ONLY 6 KCOs – Represent outcomes needed to achieve proper financial reporting and are a basis by which the effectiveness of control activities can be evaluated.

Key Control Objectives (KCOs) KCO #KCO Description 6 All obligations and accruals are reviewed for validity, and adjusted as necessary Information Technology 7 User access is consistent with assigned rights and privileges in accordance with Federal Information System Controls Audit Manual (FISCAM) requirements. FOR OFFICIAL USE ONLY 7

Key Supporting Documentation Execution Code Description of TransactionKey Supporting Documentation 540To record an obligation for authorized travel DD Request and Authorization for TDY Travel DD Travel Voucher 510To record a payable for submitted travel vouchers DD To record a disbursement for travel reimbursement DD FOR OFFICIAL USE ONLY 8 KSDs – Documentation retained to support individual financial transactions and accounting events..

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 9

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 10

Travel Control Deficiencies  Control Deficiency 1 – Outstanding Travel Vouchers  Control Deficiency 2 – Missing Receipts With Travel Voucher  Control Deficiency 3 – Inconsistent Use of Reviewer, Certifier, and Approver FOR OFFICIAL USE ONLY 11

FOR OFFICIAL USE ONLY Outstanding Travel Vouchers Issue Detail  Our assessment team noted through interviews with personnel and a review of prior CLT results that there are instances in which travelers do not file vouchers in a timely manner upon the completion of their travel. Organizational guidance mandates that vouchers be submitted within five days of return from travel. The Defense Travel System (DTS) Standard Operating Procedure (SOP) has procedures in place for the Defense Travel Administrator (DTA) to address outstanding vouchers. Impact on Audit Readiness  When travelers do not files their vouchers upon the completion of their trip the corresponding payables and disbursements are not recorded in the general ledger. This causes Obligations Incurred to be overstated and Gross Outlays to be understated on the Statement of Budgetary Resources. 12

FOR OFFICIAL USE ONLY Outstanding Travel Vouchers Path Forward / Activity Actions  Upon completion of travel, traveler should submit voucher within five days in accordance with the DTS SOP.  The command DTA should run the unsubmitted travel voucher report bi- weekly from DTS in order to identify outstanding vouchers.  Command DTA should follow up with travellers listed on unsubmitted travel voucher report to ensure that they submit outstanding vouchers in a timely fashion. 13

FOR OFFICIAL USE ONLY Missing Receipts Issue Detail  Traveler may not submit receipts with the Travel Voucher that support the amounts reported on that form. Impact on Audit Readiness  Without receipts, there is incomplete documentation to support the disbursement of payment for travel costs. Path Forward / Activity Actions  Reviewer of Travel Voucher should ensure that travel receipts are included as part of their initial review. Sign-off in DTS should not occur without receipts included. Refer to DTS SOP Page 27 for further detail.  The Dept. of Navy Office of Financial Operation (FMO) is currently working with DTS system administrators to develop functionality to run a report that would provide a list of vouchers that were missing receipts. 14

FOR OFFICIAL USE ONLY Inconsistent Use of DTS Roles Issue Detail  The assessment team noted that there is an inconsistent use of roles of Reviewer, Certifier, and Approver within DTS from command to command. Impact on Audit Readiness  The lack clearly defined roles between the traveler, reviewer, certifier, and approver may potentially lead to unauthorized recorded transactions, or a lack of segregation of duties, leading to potential fraud or abuse of travel funds. Path Forward / Activity Actions  Ensure that proper roles are assigned in accordance with guidance in the DTS SOP, and review routing lists for compliance with this guidance. 15

FOR OFFICIAL USE ONLY Questions? 16