1. Auditability Update ASMC National Capital PDI Navy Break-Out Session
Ms. Karen Fenstermacher
Deputy Assistant Secretary of the Navy (Financial Operations)
3 March 2015

2. Agenda FY2015 Navy SBA Audit Status
Game Plan for Full Financial Auditability by FY2017
What’s Left to Do – the Big Rocks
Accomplishments to Date
Discussion

3. Milestone: Navy’s initial SBA Audit began in December 2014
2015
2016
2017
2019
2018
Assertion Schedule of Budgetary Activity
Existence & Completeness Assertions
Assertion Full Financial Statements
Report to Congress on Full Financial Statement Audit
Audit Full Financial Statements
Audit Schedule of Budgetary Activity
Report Phase
October 1 – November 13*
Test Phase
July 1 – November 11*
Planning Phase
December 17 – May 20*
Control Phase
April 16 – August 31*
Auditors gain understanding of business operations
Audit plan is developed
Auditors perform walk-thrus of business processes and internal controls
Orgs support with explanations, documentation
Auditors develop samples and initiate testing of financial transactions
Commands provide key supporting documentation
Auditors evaluate test results to determine compliance with financial audit regulations
A report of findings is provided to DON
Medium
Low
High
Major
Activities
Command Involvement
*All dates are Cotton & Company estimates
Auditor Requests for Information
(as of 24 Feb)
Financial IT
Total
Delivered to Auditors (Completed) 59
261
320
Still Outstanding 32
298
330
Total Requests 91
559
650

4. Command Roles – During Audit and Beyond
Commands provide information and documentation during an audit. However, active audit participation does not end with the Audit Report. Weaknesses must be corrected., and corrective actions must be sustained.
Notice of Findings and Recommendations (NFRs) – Why do they matter?
NFRs outline weaknesses and concerns that need to be addressed by the DON
Addressing NFRs will require collaborative discussions that will shape solutions and probably require resources
Corrective actions must be implemented by relevant commands – or the entire Enterprise
Audit Notice of Findings and Recommendations (NFRs) will drive Corrective Action Plans (CAPs)
Audit findings will identify necessary changes to business processes and systems
During the audit, respond promptly to auditors’ requests for documentation – Know your business and document it!
NFRs can have a wide impact on the DON Enterprise. CAP implementation will require:
Navy action on NFRs: promptly implementing CAPs.
Progress on CAPs will be noted during successive audits.
Priorities
Example of NFR
Explain OPR process, and how it is collaborative in nature
Example: NFRs on Navy/USMC Reimbursable Work Order processes spurred move toward a DON-wide automated solution -- Invoice Processing Platform (IPP)

5. On to FY2017: Validated SBA entries will support lines on the three other statements
Work performed to prepare the SBA for audit can be leveraged for the other three financial statements – providing momentum toward the FY 2017 goal of full financial statement auditability
- % Applicability to Additional Statements -
~49%
Balance Sheet
~39%
Schedule of Budgetary Activity
Crosswalks
Statement of Net Cost
Posting Logic Analysis
~78%
Functional Assessment (Processes/ Controls)
Statement of Changes in Net Position
~72%
Single Statement Auditability
Full Financial Statement Auditability

6. Navy’s game plan to reach full auditability by FY2017
FIAR Dates
Navy Dates
NDAA Mandate
Navy’s game plan to reach full auditability by FY2017
Checkpoints
FY15
FY17
FY18
FY16
Oct
Nov
Dec
Jan
Feb
Sep
Mar
Apr
May
Jun
Jul
Aug
SEP
Statement of Budgetary
Resources
(Wave 2)
Assertion
Financial Statement
Audit Begins
9/30
Potential AUP Engagement
3/31
10/1
Assertion*
FIAR
Navy
9/30**
Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position
(Waves 3 & 4)
General Fund
Working Capital Fund
*Navy’s intent is to iteratively build beginning balances each year starting with FY15. This approach per OUSD(c) must be approved by GAO and DODIG. Navy dates are contingent upon Beginning Balance approach being approved, and are reflected above with the Navy Date icon.
**Navy’s intent is to forego examinations and initiate full financial statement audit in accordance with NDAA of 2010.
Financial Statement Audit Begins
10/1**
Confidence checkpoints will occur to assess progress to date made for audit readiness tasks performed. Tasks and timelines will be re-evaluated and, if needed, revised.
Confidence Checkpoint
01/31
2/28
10/30
The dates above are tentative dates as we are still working to finalize our full financial statement auditability strategy. Once the strategy is complete, we will make changes to the dates as needed.
The timeline reflects tentative dates to meet FIAR requirements for incremental progress toward auditability of the SBR, and other three financial statements Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position.
We have developed an integrated approach to achieve full financial statement auditability for the General Fund and Working Capital Fund. The strategy for both funds will utilize the same mechanisms to ensure progress toward readiness milestones, to include:
Confidence checkpoints to ensure progress is measuring at expected levels as work is performed. This measure will allow the Navy to consistently evaluate tasks and timelines, and if needed, make revisions
Agreed Upon Procedures to strengthen readiness posture, if issues cannot be resolved through planned readiness activities (i.e. corrective actions and substantive testing).
As we walk through this plan, you will notice we have planned employment of confidence checks and potential engagement of AUPs throughout our effort to reach financial statement audit readiness in lieu of undergoing individual examinations. Our intent is to forego examinations and initiate full financial statement audit in accordance with the NDAA of 2010.
General Fund SBR Dates:
9/30 - SBR is planned for assertion as required by FIAR
01/31- Employ a confidence checkpoint as a measure to monitor sustainment efforts
By 03/30/16 – Any potential AUPs will be engaged
The FIAR date to the begin audit of the SBR is 10/1/16. However, we plan to postpone the audit of the SBR. We will employ another confidence check by 01/31/17 to measure sustainment of SBR AR efforts and re-assert the SBR with the other financial statement by 9/30/17. Again, our intent is to forego examinations and initiate full financial statement audit by 10/1/17, which will include the SBR.
BS, SNC, SCNP Dates:
The process to meet readiness of the other three financial statements is similar to the SBR.
As we implement our strategy a confidence check is planned to occur by 2/28/16.
FIAR requires readiness of the remaining statements by 9/30/16. However, the Navy plans full financial statement assertion by 9/30/17. As a measure to ensure we are on-track to meet this goal, a confidence check will be employed by 10/30/16, and any AUPs will be engaged t 3/31/17.
The Navy plans to assert readiness of the Working Capital Fund financial statements on schedule with the General Fund financial statements on 9/30/17 and initiate financial statement audit by 10/1/17.
WCF SBR Dates:
01/31/16 – Confidence Checkpoint
03/31/16- Potential AUPs will have been engaged by this date.
01/31/17- Confidence Checkpoint
WCF BS / SNC /SNP Dates:
10/30/15 Confidence Checkpoint
10/30/16- Confidence Checkpoint
Overall, we plan to assert readiness of the General Fund and Working Capital Fund Full financial statements by 9/30/17 in accordance with the NDAA of 2010; and initiate the financial statement audit by 10/1/17.

7. What the Chart Says -- Game Plan Highlights 30 September 2015
Assert General Fund Statement of Budgetary Resources (SBR)
Build on Schedule of Budgetary Activity (SBA) work so far
30 September 2017
Assert the other seven General Fund/Working Capital Fund statements:
WCF SBR
GF/WCF Balance Sheet
GF/WCF Statement of Net Cost
GF/WCF Statement of Changes in Net Position
Now thru FY2017
Periodically conduct confidence checkpoints
Assess auditability progress to date
Re-evaluate timelines/milestones if necessary
Get auditor read-outs if necessary on progress
Agreed Upon Procedures to dig further if required
Audit of all statements begins early in FY2018
Flexible approach to maximize audit readiness by the end of FY2017

8. Many hands on the wheel will be required!
On The To-Do List --
Challenges To Meet
Business Processes
Continue remediation and sustainment
Search for Enterprise, impactful solutions – e.g., IPP
Asset Management
Complete Existence and Completeness on General Equipment, OM&S, Real Property
Implement valuation strategy
Sustain gains
Data Management
Remediate control deficiencies
Continue building out data warehouse/analytics
Emphasize Navy ERP capabilities
Defense Agency Service Providers
Forge ever-closer collaboration – many controls are performed outside Navy!
From BSOs’ Perspective
Resources and Policy are concerns
Many hands on the wheel will be required!

9. Solid Achievements To Date
FIAR Accomplishments
Strengthened Controls Over Business Processes
As demonstrated by positive results on segment exams
Overhaul of Business Systems has begun
Controls assessments on major business/financial systems; CAPs must be expedited
Navy ERP change backlog tackled
Progress in Asset Accountability
Existence and Completeness validated for major military equipment, ordnance; progress continues
Valuation strategy evolving
First Congressional mandate met
SBA audit began December 2014
Sense of urgency must continue to meet FY2017 goal