Our objective was to determine whether the Navy’s Contract/Vendor Pay (CVP) transactions were auditable and supported.
We determined that the Navy could not provide an auditable CVP universe. Specifically,
- Navy Office of Financial Operations (FMO) could not compile a complete CVP universe. This occurred because Navy FMO did not design its financial management systems to identify CVP transactions and support an audit of CVP. In addition, Navy FMO did not perform detailed reconciliations of its CVP transactions; and
- The Naval Air Systems Command did not process Navy Enterprise Resource Planning CVP transactions timely. This occurred because Navy FMO did not develop its business processes to follow generally accepted accounting principles and record a liability when a good or service was received.
In addition, the Naval Facilities Engineering Command (NAVFAC) lacked appropriate supporting documentation for 17 of the 30 transactions nonstatistically reviewed. This occurred because NAVFAC did not develop procedures to ensure that personnel could support these transactions.
If Navy FMO cannot identify a complete CVP universe, which it reported as part of the “outlays” and “obligations incurred” line items on the Schedule of Budgetary Activity (SBA), there is an increased risk that the Navy will not produce an auditable universe of transactions for its SBA audit. Also, the Accounts Payable balance on the Navy’s General Fund Balance Sheet may be understated. Lastly, the lack of support increased the risk that transactions were not valid and the financial statements were inaccurate. As the Navy moves forward with its audit readiness efforts, determining that the financial statements contain all necessary transactions will be a key part of the financial statement audits.
The Under Secretary of the Navy asserted that its SBA was audit ready based on assertions of business segments, including CVP. The deficiencies we identified in this report highlight specific challenges that should be corrected to improve the likelihood of a successful audit. If these deficiencies are not corrected, the Navy SBA audit opinion could be negatively affected.
We recommend that the Deputy Assistant Secretary of the Navy (Financial Management and Comptroller) develop a reconciliation process that supports the current SBA and other financial statements; develop a process or system interface between Navy Enterprise Resource Planning and legacy systems to ensure transactions are processed in compliance with guidance; and establish procedures to identify and retain supporting documentation for all transaction types.
Management Comments and Our Response
Comments from the Deputy Assistant Secretary of the Navy (Financial Operations), responding for the Assistant Secretary of the Navy (Financial Management and Comptroller), addressed Recommendation 1 and partially addressed the specifics of Recommendation 2 and 3. We request comments in response to the recommendations by July 31, 2015.
This report is a result of Project No. D2014-D000FS-0190.000.