Bureau of Medicine and Surgery2012 Navy Medicine Audit Readiness Training

Symposium

Civilian Payroll: Path to Audit Readiness

June 5th – 6th, 2012

FOR OFFICIAL USE ONLY

Audit Readiness

Context DoD is required to assert audit readiness for the Statement of

Budgetary Resources (SBR) by the end of Fiscal Year 2014. As part of Navy Medicine’s audit readiness effort, the Civilian Payroll business process has been identified as an assessable unit for which assertion must take place.

Purpose To discuss the Key Control Objectives (KCOs), Key Supporting

Documents (KSDs), identified gaps and potential corrective actions for Civilian Payroll.

Outcome An understanding of the status of the Civilian Payroll assessable

unit, including major deficiencies and what can be done now at the field level to facilitate a successful financial statement audit. Some assessable units may not require field action at this time.

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Civilian Payroll Scope & Definition

FOR OFFICIAL USE ONLY3

Definition Includes hiring, time and attendance, payroll, accrual, reconciliation, personnel changes, separation and retirement of civilian personnel

Assessable Unit Lead/Team

Ms. Kimberly McIntireMs. Mitzi CruzMs. Terry Carey

Assessable Unit Support

Bhavin Patel – bhavpatel@deloitte.comChaz Swingle – cswingle@deloitte.com

Q1 FY12 Disbursements

$313 million

Audit Readiness Timeline

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FY12 FY13 FY14

Assessable Units – Wave 2 Max Assertion Date

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Travel 4 SEP 2012

Consumables 3 DEC 2012

Reimbursable Work Orders – Grantor

3 DEC 2012

Reimbursable Work Orders – Performer (Non-UBO)

1 APR 2013

Military Payroll (including RPN) 1 APR 2013

Contract Administration 1 JUL 2013

Non-Federal Receivables (UBO/Medical Treatment)

1 JUL 2013

Federal Receivables (UBO/Medical Treatment)

3 SEP 2013

Civilian Payroll 2 DEC 2013

Financial Reporting 2 DEC 2013

Funds Management (FBWT) 2 DEC 2013Assessable Unit AssertionInterim Progress

Milestones (90 Days, 50 %, 75 %)

Control Testing Time Period

Audit Readiness Process

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Tasks Work ProductsComplet

ed

Document Assessable Units

1Determine which key business processes are Assessable Units

• Process Narrative

• Process Flowchart

Mar. 1st

2Document Assessable Units through interviews and observation

Assess Internal Controls3 Determine control objectives for each Assessable Unit

• Control Assessment

Mar. 1st

4 Highlight internal controls in process documentation

5Assess whether controls are effective in meeting control objectives

Assess Supporting Documentation

6Determine what supporting documents exist for each transaction type • Key Supporting

Document Matrix

Apr. 16th

7Assess whether there are any unsupported transactions

Identify and Prioritize Deficiencies

8Create list of deficiencies for any objectives that are not met or transactions that are not supported • Deficiencies

ListingApr. 30th

9 Prioritize deficiency list based on audit criteria

Key Control Objectives

KCO #

KCO Description

Need for Resource

1Salary and benefits for new hires do not exceed funding authority

Records Management (Personnel Action)

2

Civilian personnel actions are valid (authorized/approved transactions supported by requests for personnel action) and recorded accurately

3 All civilian personnel actions are recorded timely

4Personnel and payroll records are adequately secured and appropriately safeguarded in compliance with established law and regulations

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KCOs – Represent outcomes needed to achieve proper financial reporting and are a basis by which the effectiveness of control activities can be evaluated.

Key Control Objectives

KCO #

KCO Description

Time and Attendance

5Time and Attendance information is valid (authorized/approved transactions supported by timesheet) and is recorded correctly

6All Time and Attendance information is recorded timely

Records Processing

7Civilian payroll salary and benefit information is accurately calculated and paid based on correct data processing

8

Payroll obligations, accruals, and disbursements are valid (authorized/approved transactions supported by pay file, disbursing voucher, etc.) and are accurately recorded and classified in the General Ledger(s)

9All payroll obligations, accruals and disbursements are recorded in the General Ledger(s) timely

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Key Control Objectives

KCO #

KCO Description

Adjustments

10All obligations and accruals are reviewed for validity, and adjusted as necessary

Information Technology

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User access is consistent with assigned rights and privileges in accordance with Federal Information System Controls Audit Manual (FISCAM) requirements

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Key Supporting Documentation

Execution Code

Description of Transaction

Key Supporting Documentation

540 To record an obligation for Civilian Labor

• OPTAR)amount in the BUMED Annual Planning Figure (BAPF)

510 To record an accrual for Civilian Labor

• No Key Supporting Documentation

610 To record a disbursement for Civilian Labor

• LXL3935 – Labor Report

• LXL3951 – Fringe Benefits Report

FOR OFFICIAL USE ONLY9

KSDs – Documentation retained to support individual financial transactions and accounting events.

Deficiency Types

Material Weakness – A deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected timely.

Significant Deficiency – A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Control Deficiency – A deficiency that exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements in a timely manner.

FOR OFFICIAL USE ONLY10

Considerations For Deficiency Type

Quantitative Materiality - Dollar impact or potential impact to the financial statements

Qualitative Materiality - Non-quantitative factors such as complexity of transactions, legal or regulatory concern or system deficiencies

Pervasiveness - Number of activities or transactions affected by the deficiency

Audit Dealbreaker - Issues that prevent an audit from occurring

Existing Guidance - Determining whether current policy or SOP is in place that meet financial reporting requirement

FOR OFFICIAL USE ONLY11

Civilian Payroll Material Weaknesses

Material Weakness 1: Lack of Reconciliation Between the Standard Accounting and Reporting System – Field Level (STARS-FL), Defense Civilian Pay System (DCPS), and Treasury

Material Weakness 2: Time & Attendance Inconsistencies

General Causes:• Lack of Standard Processes; No SOP• Availability of Data• Multiple Error Possibilities

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FOR OFFICIAL USE ONLY

Lack of Reconciliation in Payroll Processing

Issue Detail No standardized reconciliation occurring at Navy Medicine between

Gross Pay File transmitted by DCPS, STARS-FL, and Treasury. Reconciliation is required to ensure that amounts included in Gross

Pay File are being accurately recorded in STARS-FL, as well as at Treasury.

Reconciliation should be performed on a bi-weekly pay period basis. Reconciliation gives assurance that what was paid to employees is

accurately reflected in financial statements.

Impact on Audit Readiness This reconciliation is utilized to detect any errors that may have

occurred during the system interface between STARS-FL and DCPS. Errors might include incomplete file transmission, duplicate file

transmission, or rejection of certain data detail due to errors in file coming from DCPS.

Such errors might cause misstatements of the Gross Outlays line item on the SBR. 13

FOR OFFICIAL USE ONLY

Lack of Reconciliation in Payroll Processing

Path ForwardIn conjunction with the Navy Medicine Standard Operating Procedure (SOP) team, the Civilian Payroll Audit Readiness team conducted a week long Civilian Payroll working group, the purpose of which was to develop a standard reconciliation process to address the identified material weakness. The developed standard process is scheduled to be documented in an SOP to be drafted by August 2012.

Potential Activity Actions•Participate in development of Civilian Payroll SOP via actively submitting change requests and feedback where possible.•Once complete, Activities will be responsible for reconciling the Master Employee Record (MER) to SLDCADA and the Gross Pay File (GPF) to the general ledger (STARS-FL) and Work Year Personnel Cost (WYPC) in accordance with the SOP..

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FOR OFFICIAL USE ONLY

Time & Attendance Inconsistencies

Issue Detail Variations exist across the enterprise in how Time & Attendance is

recorded and certified. Over time certification processes have shifted at the field level on a

varying basis, creating no standard process. Some activities have a decentralized process; others are centralized.

Lack of standardized processes creates a situation in which controls can not be adequately assessed. This increases the risk that time and attendance may be reported incorrectly, and that payroll disbursements may be based on incorrect time and attendance amounts.

Impact on Audit Readiness Time and Attendance accuracy affects every disbursement recorded

for Civilian Payroll. This means that we can not ensure that these amounts are accurate and correctly stated in the ‘Gross Outlays’ line of the SBR. 15

Path ForwardThe Dept. of Navy has developed a high-level process for Civilian Payroll; Navy Medicine supported creation of this process. Navy Medicine will update the Time & Attendance Instruction to mirror this Navy process, at a much more detailed level, and create a plan to guide activities in implementing the new process.

FOR OFFICIAL USE ONLY

Time & Attendance Inconsistencies

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Navy Medicine Civilian Payroll Process (Page 1 of 1)

Timekeeping Entry and Accounting

Em

plo

yee

Mili

tary

Tre

atm

en

t F

aci

lity

5.Costs captured in

STARS

3.Enter time into

SLDCADA

2.Record Time

10.Employee receives

check

8.DFAS makes payment

4. Upload to DCAS via SLDCADA

START A1.

Work Hours

9.Review Payment

6.End of Month

7.Record Accruals

End

Navy Medicine Civilian Payroll Process (Page 1 of 1)

Timekeeping Entry and Accounting

Em

plo

yee

Mili

tary

Tre

atm

ent F

aci

lity

5.Costs captured in

STARS

3.Enter time into

SLDCADA

2.Record Time

10.Employee receives

check

8.DFAS makes payment

4. Upload to DCAS via SLDCADA

START A1.

Work Hours

9.Review Payment

6.End of Month

7.Record Accruals

End

Navy Medicine Civilian Payroll Process (Page 1 of 1)

Timekeeping Entry and Accounting

Em

plo

yee

Mili

tary

Tre

atm

en

t F

aci

lity

5.Costs captured in

STARS

3.Enter time into

SLDCADA

2.Record Time

10.Employee receives

check

8.DFAS makes payment

4. Upload to DCAS via SLDCADA

START A1.

Work Hours

9.Review Payment

6.End of Month

7.Record Accruals

End

Navy Medicine Civilian Payroll Process (Page 1 of 1)

Timekeeping Entry and Accounting

Em

ploy

eeM

ilita

ry T

reat

men

t Fac

ility

5.Costs captured in

STARS

3.Enter time into

SLDCADA

2.Record Time

10.Employee receives

check

8.DFAS makes payment

4. Upload to DCAS via SLDCADA

START A1.

Work Hours

9.Review Payment

6.End of Month

7.Record Accruals

End

Navy Medicine Time &

Attendance Corrective Action Plan

NMENME

NMCSDNMCSD

NMLCNMLC

Navy MedicineNavy Medicine

Single ProcessSingle Process

Other Civilian Payroll Deficiencies

Deficiency 1: Lack of Oversight over Service Providers

Deficiency 2: Variations in the New Hire Process

Deficiency 3: No Enterprise Standard Labor Data Collection and Distribution Application (SLDCADA) Administrator

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FOR OFFICIAL USE ONLY

Lack of Oversight at Service Providers

Issue Detail There is a lack of oversight by BUMED over the service

providers at Human Resource Service Center (HRSC) and Defense Finance and Accounting Service (DFAS)

Effect on Audit Readiness Without validating transactions processed at service providers,

there is a risk for misstatements in the financial statements

Potential Activity Actions Review SSAE-16 Service Audit Report for DCPS payroll

processing Ensure SF-52 is correctly processed by reviewing against final

SF-50

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FOR OFFICIAL USE ONLY

No Enterprise SLDCADA Administrator

Issue Detail There is no enterprise SLDCADA administrator

Impact on Audit Readiness Having an enterprise administrator allows standardization

of control activities and processes across the organization

Potential Activity Actions Determine feasibly of an enterprise SLDCADA

administrator

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FOR OFFICIAL USE ONLY

In The Mean Time……. DECENTRALIZE!

Communication (up and down the chain) Work in progress

CIVPAY Audit Toolkit Check sheet for timekeeping (employee, supervisor,

CSR/SA) Draft of Timekeeping instruction Accrual basics Region Recon tool Activities Recon tool

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FOR OFFICIAL USE ONLY

Questions?

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