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06 January 2010

Marine Corps Financial Statement Audit Update

FY10 Consolidated Statement of Budgetary ResourcesFY10 Consolidated Statement of Budgetary Resources

Presented At:

DON Financial Improvement Program Conference

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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)

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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

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Successful Audit = Doing Business the Right Way!

Support the Mission… …through more efficient financial business process translating requirements

generation to a funded resource that better supports mission accomplishment.

Secure 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.

Speed in Communication… …through improved data reliability and timeliness that better empower leadership

in decision making.

Sustainment 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.

Societal Responsiveness… …as stewards of our nations resources and via accurate and transparent

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Application of the “Auditor Lens” Across 5 Key Strategic Areas

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Organization & InfrastructureOrganization & Infrastructure

Policies & ProceduresPolicies & Procedures

Information SystemsInformation Systems

PeoplePeople

Management / Internal ControlsManagement /

Internal Controls

Data IntegrityData Integrity

Accurate, Timely, Relevant Financial

Information

Accurate, Timely, Relevant Financial

Information

5 Key Strategic Areas5 Key Strategic Areas

GovernanceGovernance SustainabilitySustainability

Peformance Metrics

Auditability

Addressing the five strategic areas requires an analysis of:

1. Internal Controls2. Source Documentation3. Reconciliations4. Validity and integrity

• Completeness• Rights and Obligations• Valuation• Existence• Reporting

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Speaking the Audit Language: Supporting Financial Statement Audit Assertions

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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.

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Test 1: Engaged Commands in Audit-like Exercises through IPA (Completed)

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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.

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Test 2: Validated Linkage to Detail Transactions in Core Accounting System (Completed)

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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.

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Source Document Testing

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Test 3: Internal Control over Financial Reporting (ICOFR) Program (Sustaining Effort)

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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.

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Test 4+: Demonstrated Sustainable Audit Trail and Documentation Retrieval (Completed)

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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.

Transaction Cycle

Balance Cycle Presentation & Disclosure

Occurrence Existence Occurrence

Completeness Rights & Obligations Rights & Obligations

Accuracy Completeness Completeness

Cutoff Valuation and Allocation Accuracy

Classification Valuations

Source Documentation Testing…

…demonstrated the Marine Corps’ ability to support the transaction audit trail and mitigate risks associated with Transaction Cycle assertions.A

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Test Results and Output: Improved Transaction Detail and Reconciliation

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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.

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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.

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Draft Audit and Test Plans - Jan 22

Planning Documentation – General Risk Analysis, Entity Profile,

Summary Planning MemoDue – April 2nd

Overall Planning

and Reporting

Teams

Beginning Balances

and IT Team

BudgetFunding

andFinancialReporting

Team

BudgetExecution

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 PhaseDraft – Oct 27Final - Nov 3

Management Letter Nov 24

Year End Testing

Year End Testing

EDP Internal Controls – SCE Completion

EDP Planning

Ongoing Project Management & Status Reporting

Proposed Timeline for USMC SBR Audit Effort

Obtain Downloads

Sample Selection

Retrieve Documentation

Test Documentation

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Audit Stakeholders & Communication Hierarchy

Training, coordinating, managing and responding to the day-to-day audit efforts.

Supporting the DoDIG by conducting the audit.

External Stakeholders (i.e. DLA, BTA)

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.

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Data

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Audit EvidenceAudit Evidence

Communication and CollaborationCommunication and Collaboration

Beginning BalancesBeginning Balances

Control EnvironmentControl EnvironmentDocumentationDocumentation RepresentationsRepresentations

Audit OpinionAudit Opinion

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Leveraging SharePoint in Audit Communication

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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.

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