1. Understanding Audit: FY17 Results and Way Ahead
UNCLASSIFIED
Understanding Audit: FY17 Results and Way Ahead
Dr. Dorothy Potter
Risk Management Section Head
Risk and Compliance Branch
Programs and Resources
Headquarters, U.S. Marine Corps
January 2, 2018
UNCLASSIFIED
UNCLASSIFIED

2. Full Financial Statement Audit
What is a Full Financial Statement Audit?
Annual, comprehensive review of the health of the Marine Corps measured in dollars.
Budget, Balance Sheet, Internal Controls, IT Systems
Wide ranging impact from equipment and property accountability, to IT risk management, to business process design and control
Goal: “Unmodified” Opinion
FY17 Result: Disclaimer
9 Material Weaknesses
134 Notices of Findings or Recommendations (NFRs)
Future progress will be measured by fixing NFRs

3. Audit Return on Investment
Clean opinion is a basic expectation from the taxpayer, Congress, and top leadership
However, true value to Marines is increased accountability over resources and the promise of increased funding to support operations and investment
Example: Accountability of ammunition
Example: Equipment accountability and resourcing
Example: IT Controls
Basic standard of organizational health and risk
Senate, SECDEF, SECNAV interest
Expected to produce real savings through increased accountability of resources
Get the most out of limited resources
Examples of wasted resources:
Reconciliation of $8B in Ammunition with Army
85% Documented proof of capital equipment

4. Clifton, Larsen, Allen (SBA)
Goal: Unmodified Opinion by FY20 Achieved by incremental reduction of NFRs and Material Weaknesses
Grant Thornton (SBA)
Clifton, Larsen, Allen (SBA)
Kearney and Co, P.C. (FFS)
DoN
Financial
Statement
Merge
FY2010
FY 2014
FY 2017
FY 2020
- Army Corps of Engineers experience shows that level of effort decreases with successful corrective action

5. Keys to Success and Questions to Ask
Who is reviewing your internal controls?
Understanding business process
SOPs and “Evidence of Oversight”
Not just for financial managers
What’s the root cause of the problem?
Have we tested to ensure it’s fixed?
Are our IT systems and business processes designed with audit in mind?

6. Questions

7. Types of Audit Opinions
UNCLASSIFIED
NOTE: In FY13, the American Institute of Certified Public Accountants (AICPA) issued guidance to clarify the opinion type names to be consistent with the language used in the International Standards on Auditing (ISAs).
UNCLASSIFIED

8. FY17 Material Weaknesses (Slide 1)
UNCLASSIFIED
FY17 Material Weaknesses (Slide 1)
Entity-Level Controls (P&R / C4)
Mature Entity Level Control Processes Lacking (Tone, PCN Consistency)
Incomplete IT System RMF Entity Rationalization and Implementation
Ability to provide complete, timely, and sufficient evidence (All Areas)
Timeliness of Business Process Documentation
Transaction Level Data Populations Supporting Account Balances
Complete and Timely Documentation Supporting Sampled Transactions
Financial Reporting and Analysis (P&R, FM Community)
Completeness of Financial Statements and Disclosures (A136, GAAP, Aviation, MERCHF)
FM Analysis and Oversight (SABRS, DDRS, Oversight of DFAS)
Accounting For Estimates (AP Accrual Estimations, Contingent Legal Liabilities, CivPay Labor Accrual Oversight
Integrated Financial Management Systems (P&R, I&L)
SABRS Interface Controls, SABRs to SMARTS Reconciliation, Feeder to SABRs Reconciliation, SABRS to APSR Reconciliation
UNCLASSIFIED

9. FY17 Material Weaknesses (Slide 2)
UNCLASSIFIED
FY17 Material Weaknesses (Slide 2)
ICOFR – Material Weaknesses (continued…Slide 2)
Accounting for Property, Plant, and Equipment (PP&E) (I&L, MCICOM, Commanders)
Existence and Completeness of PP&E (Ineffective Inventory Mgmt Controls)
Valuation of PP&E (Statements of Differences)
Accounting for Operating Materials and Supplies (OM&S) (I&L, LOGCOM, MCSC)
Populations and Transactional Data (Temp Storage, Set Assembies, Ammo)
Valuation of OM&S (e.g. OIS-MC)
Fund Balance with Treasury Controls (P&R)
Disbursements and Collections, DFAS Suspense Accounts
Business Process Controls (P&R, FM, Supply, Internal Controls)
Documentation fully supporting e.g. leave, triannual review, entitlement changes, timekeeping, R&A, Segregation of Duties…etc.
Information Systems (IT PMs, Commanders, all users)
Continue transition to NIST RMF
UNCLASSIFIED