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Marine Corps Financial Statement Audit Update
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Marine Corps Financial Statement Audit Update


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  • Two Standard Foundations for a Governance Framework… 1. Duty of Care - to be informed and exercise appropriate diligence in making decisions and to oversee the proper management of the entity; and, 2. Duty of Loyalty - to put the interests of the entity before those of the individual.
  • Rationale The Marine Corps comprises about 5 percent of DoD resources Previously audited entities were approximately 0.5 percent, or less Marine Corps financial management practices “touch” nearly all financial/feeder systems Marine Corps managed appropriations are reflective of DoD as a whole Marine Corps/DFAS partnering to improve processes and systems that support the standard of “Sustainable” financial management report generation Benefits to OSD Provide a prototype for an entity that could serve as a pilot for: Achieving and sustaining an unqualified audit opinion Providing valuable lessons learned
  • Exec Overview - All
  • Two Standard Foundations for a Governance Framework… 1. Duty of Care - to be informed and exercise appropriate diligence in making decisions and to oversee the proper management of the entity; and, 2. Duty of Loyalty - to put the interests of the entity before those of the individual.
  • Exec Overview - All
  • Transcript

    • 1. 06 January 2010 Marine Corps Financial Statement Audit Update FY10 Consolidated Statement of Budgetary Resources Presented At: DON Financial Improvement Program Conference
    • 2. Agenda
      • Why USMC is audit ready?
        • Governance
        • Documentation
        • Testing and Training
      • Status of USMC Financial Statement Audit
        • Managing Audit Expectations
          • Timelines
          • Communication
        • Responding to Auditor Requests (i.e., Provided by Client (PBC) Requests, Beginning Balance Testing and IT Audit Planning)
    • 3.
    • 4. Governance : The “Why” in Audit Readiness…
      • Legal Requirements
        • Federal Manager's Financial Integrity Act (FMFIA) of 1982
        • Chief Financial Officers Act (CFO) of 1990
        • Government Management Reform Act (GMRA) of 1994
        • Federal Financial Management Improvement Act (FFMIA) of 1996
      • Commandant of the Marine Corps White Letter 01-08
        • “ A successful financial audit…is vital to the future health of our Corps.”
      • Benefits
        • Provides Congress with increased confidence in our ability to execute resources
        • Better accuracy and timeliness
        • Identify problem areas to OSD regarding Defense wide systems
        • Enhance all of our processes
    • 5. Successful Audit = Doing Business the Right Way!
      • S upport the Mission…
        • … through more efficient financial business process translating requirements generation to a funded resource that better supports mission accomplishment.
      • S ecure Resources…
        • … through improvements in financial performance and better employment of resources while promoting process examination that support continuous improvements and detection of waste and abuse.
      • S peed in Communication…
        • … through improved data reliability and timeliness that better empower leadership in decision making.
      • S ustainment Strategy for Financial Improvement…
        • … as a means to promote financial oversight and accountability in complying with legislative mandates and agency guidance to improve financial confidence.
      • S ocietal Responsiveness…
        • … as stewards of our nations resources and via accurate and transparent financial reporting.
    • 6.
    • 7. Application of the “Auditor Lens” Across 5 Key Strategic Areas Organization & Infrastructure Policies & Procedures Information Systems People Management / Internal Controls Data Integrity Accurate, Timely, Relevant Financial Information 5 Key Strategic Areas Governance Sustainability
      • Addressing the five strategic areas requires an analysis of:
      • Internal Controls
      • Source Documentation
      • Reconciliations
      • Validity and integrity
        • Completeness
        • Rights and Obligations
        • Valuation
        • Existence
        • Reporting
    • 8. Speaking the Audit Language: Supporting Financial Statement Audit Assertions
      • The Marine Corps has linked relevant risks to financial statement audit assertions in order to better support audit evidence regarding:
        • Recognition;
        • Measurement;
        • Presentation; and,
        • Disclosure of information in the financial statements and related notes.
      Financial Statement
    • 9.
    • 10. Test 1 : Engaged Commands in Audit-like Exercises through IPA (Completed)
      • Purpose
      • Validated discovery efforts by examining key accounting processes and their related internal control activities;
      • Validated the soundness of our risk-based, top-down approach to establishing internal control testing strategies within the Internal Control over Financial Reporting (ICOFR) program; and,
      • Enhanced accountability and ownership processes and internal controls.
      • Remediation
      • Modified audit assertion package to better reflect financial business function and related internal controls.
      • Engaged in documentation capture and transmittal exercise involving all Marine Corps Commands and DFAS.
      • Better leveraged the use of electronic document repositories.
    • 11. Test 2 : Validated Linkage to Detail Transactions in Core Accounting System (Completed)
      • To support Financial Statement Line Item traceability, the following reconciliations occur:
          • Standard Accounting, Budgeting and Reporting System (SABRS) Trial Balance Reconciliation
          • Line Item Account Reconciliation
          • SF-133 to SBR Reconciliation
      • We have linkage from the detail transactions to the General Ledger to the Financial Statement Line .
      • Reviewed, tested, and validated by Deloitte & Touche LLP through re-performance and Financial Statement rebuild.
      Transactions Source Document Testing
    • 12. Test 3 : Internal Control over Financial Reporting (ICOFR) Program (Sustaining Effort)
      • Established ICOFR cycle POA&M that defines the process cycle materiality as well as sampling materiality in accordance with AICPA and FAM standards.
      • Developed assertion-based risk matrix that can be used by the auditor in considering the nature/magnitude of possible misstatement risks.
      • Evaluated internal control design and operating effectiveness through testing at the transaction-cycle level. (FY09 Sample > 6000)
      • Reported weaknesses to senior management and developed a corrective action plan (monitoring) methodology that maintains focus on financial improvement.
    • 13. Test 4+ : Demonstrated Sustainable Audit Trail and Documentation Retrieval (Completed)
      • Engaged in attribute testing that demonstrated audit sampling confidence.
      • Supported management’s assertions for supporting documentation in order to proceed to the audit phase of the Statement of Budgetary Resources.
      • Reinforced documentation and audit support requirements throughout the Marine Corps.
      Source Documentation Testing… … demonstrated the Marine Corps’ ability to support the transaction audit trail and mitigate risks associated with Transaction Cycle assertions. Assertions Transaction Cycle Balance Cycle Presentation & Disclosure Occurrence Existence Occurrence Completeness Rights & Obligations Rights & Obligations Accuracy Completeness Completeness Cutoff Valuation and Allocation Accuracy Classification Valuations
    • 14. Test Results and Output: Improved Transaction Detail and Reconciliation
      • Assessed financial management environment and identified dependencies, risks, and gaps to mitigating risk.
      • Linked our systems environment providing traceability from requirements generation to financial statement presentation.
        • Detailed transaction accountability from business feeder systems to the General Ledger (Budgetary and Proprietary).
      • Produced detailed “Grid Sheets” to support auditor scoping and planning.
        • Details transaction counts and amounts by Statement of Budgetary Resources (SBR) line item, system, location (Command), and other transaction identifiers.
      • Full reconciliation of Fund Balance with Treasury supports the Statement of Budgetary Resources from a cash basis position.
    • 15. Test Results and Output: Training and Update
      • Conducted a series of workshops with field personnel in order to promote process and internal control understanding.
        • Conducted audit summits to promote awareness and service provider support.
        • Conducted field-level workshop and highlighted disconnect between key internal controls identified in IPA audit-like exercises and A-123 evaluations.
        • Conducted audit preparation workshop in order to guide command audit expectations and introduce the auditor to field personnel.
      • Continued auditor-lens documentation review of all processes.
        • Engaged in a comprehensive review of business processes and prepared comprehensive process cycle narratives from which to further reinforce standardized financial management activities and controls.
        • Enhances auditor understanding of core financial cycles and processes.
    • 16.
    • 17. Proposed Timeline for USMC SBR Audit Effort Draft Audit and Test Plans - Jan 22 Planning Documentation – General Risk Analysis, Entity Profile, Summary Planning Memo Due – April 2nd Overall Planning and Reporting Teams Beginning Balances and IT Team Budget Funding and Financial Reporting Team Budget Execution Team Final Audit and Test Plans - Mar 5 Internal Control Phase–Account Risk Analysis, Specific Control Environments, Internal Control Phase –Account Risk Analysis, Specific Control Environments Testing Phase - Controls and Interim Testing Phase – Controls and Interim Site Visit Testing EDP testing General and Application Controls 3 rd Quarter F/S Testing and Roll-up Formal Briefing on I/C Phase Internal Controls Phase ARA / SCES Updated Test Plans Summary Memo May 27,2010 Testing Phase Summary Memo October 18,2010 Reporting Phase Draft – Oct 27 Final - Nov 3 Management Letter Nov 24 Year End Testing Year End Testing EDP Internal Controls – SCE Completion EDP Planning Ongoing Project Management & Status Reporting Obtain Downloads Sample Selection Retrieve Documentation Test Documentation
    • 18. Audit Stakeholders & Communication Hierarchy Training, coordinating, managing and responding to the day-to-day audit efforts. Supporting the DoDIG by conducting the audit. 1. Responding to auditor requests for information. 2. Facilitating site visits and walkthroughs of processes. Audit Sphere! Managing the conduct of the audit and issuing the audit opinion. External Stakeholders (i.e. DLA, BTA)
    • 19. Data Reliability Accessibility Site Visits IT Environment Communication Audit Evidence Communication and Collaboration Beginning Balances Control Environment Documentation Representations Audit Opinion
    • 20. Leveraging SharePoint in Audit Communication
    • 21. Provided By Client (PBC) List and the Way Ahead
      • First PBC list delivered on 10 Nov 2009 and levied 149 requirements.
        • PBC segmented into three cycles (Financial and General, Information Technology, and Data Calls) across the four phases of the audit (Planning, Beginning Balance, Testing and Reporting).
        • Response date varies among cycles and phases.
      • Auditors are currently reviewing accounting data to begin sample testing in early January, 2010.
        • Marine Corps has transmitted population data in support of beginning balance testing.
      • Auditors are also reviewing PBC responses in order to define which systems will be tested.
        • System reviews will potentially account for 45% of the audit effort.