1. Field of Dreams Shaping Internal Controls & Process Remediation to Achieve Sustainable Financial Audit Success CDR COLIN CAMPBELL LCDR MIKE DANISH Touchstone Pictures

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3. Previously On… Aligning Remediation & Internal Controls Internal Control Cycle Tools & Best Practices Roadmap to Success www.uscg.mil/hq/cg8/cg845/treats

4. Agenda Context and messaging Remediation strategies Internal controls Customer focus Transition to sustainment

5. US Coast Guard

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7. “We have a clean opinion, why do we have to change this?”

8. Audit is Proxy: Get House in Order Independent confirmation that Financial statements are reliable Business processes are effective Organization complies with laws and regulations

9. “The audit means nothing to me.”

10. Financial Statements Financial statements simply reflect how your organization is managed and run. Provide data needed to assess efficiency and effectiveness of operations Accounting standards reinforce accountability for assets and programs

11. “I can guarantee you my team is doing it right.”

12. Processes Activities that ensure that processes are working as desired, reduce errors, and identify problems as they occur. Management establishes; employees execute. Operations: pre-flight/under-way checklists, quality control checks on product lines Financial: funds check, approval signatures Systems: access controls

13. Unless you want the audit to be an annual exercise in compliance, you need effective internal controls.

14. 14 US Coast Guard

15. Compliance Auditors ensure compliance with applicable laws and regulations.

16. 16 US Coast Guard

17. Executive Focus 17 Oversees coordination of annual financial statement audit activities Validates, verifies, and reports to the Commandant EMC-ICARB: Executive Management Council – Internal Controls/Audit Readiness Board Assists in overseeing and coordinating the annual financial statement audit Reports remediation effort progress to the EMC-ICARB SAT: Senior Assessment Team Develops corrective actions to address material weaknesses and significant deficiencies Coordinates and executes the planned remediation efforts MAP: Mission Action Plan Promotes importance and value of internal control and accountability Facilitates effective communication, coordination, monitoring, and execution of internal control initiatives, including risk assessments ICWG: Internal Control Working Group

18. US Coast Guard

19. US Marine Corps

20. Strategy 20 Assessable Units Scope Materiality Size Root cause, GAAP Sustainable Asset focus, accounting mechanics Balance Policies, procedures, controls Controls Modernize financial/logistics systems System

21. Lucasfilm

22. US Coast Guard

23. 23 Organize your parts

24. 1) Determine Scope 2) Perform Materiality Assessment 3) Perform Risk Assessment 4) Document Process and Procedures 5) Develop Testing Plan 6) Perform Test of Design 7) Perform Test of Effectiveness 8) Evaluate Test Results 9) Report Results to Management 10) Create Corrective Action Plan 11) Roll Forward and Monitoring 12) Statement of Assurance 24 Internal Control Cycle

25. 1) Determine Scope 2) Perform Materiality Assessment 3) Perform Risk Assessment 4) Document Process and Procedures 5) Develop Testing Plan 6) Perform Test of Design 7) Perform Test of Effectiveness 8) Evaluate Test Results 9) Report Results to Management 10) Create Corrective Action Plan 11) Roll Forward and Monitoring 12) Statement of Assurance 25 Fails TOE Fails TOD High Risk Internal Control Cycle

26. 1) Determine Scope 2) Perform Materiality Assessment 3) Perform Risk Assessment 4) Document Process and Procedures 5) Develop Testing Plan 6) Perform Test of Design 7) Perform Test of Effectiveness 8) Evaluate Test Results 9) Report Results to Management 10) Create Corrective Action Plan 11) Roll Forward and Monitoring 12) Statement of Assurance 26 Remediated Internal Control Cycle

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30. 30 Risky Business

31. Internal Control Reporting Coast Guard Commandant’s Assurance Statement Assessable Organizational Elements (AOE) Assurance Statements Compliance with Laws and Regulations Reliable Reports Effective and Efficient Operations Internal Controls Over Operations (AOE) CG-85 Information Technology General Controls (CG-6) CG-6 Internal Controls Over Financial Reporting (CG-85) Government Performance and Results Act Reporting (DCO)

32. 32 One goal, many steps

33. Take-Aways Audit remediation = getting house in order Controls benefit everyone Senior leaders need to drive message Focus on the material issues Don’t go overboard

34. Take-Aways Set up an annual cycle Get the right information to process owners and to leadership Don’t speed through risk assessment and remember risk is a matter of perspective Champion successes but stick to high standard

35. Questions? CDR Colin Campbell CG-845 colin.e.campbell@uscg.mil LCDR Mike Danish CG-85 michael.v.danish@uscg.mil 35