Internal Management Controls

Tri-SERVICE MEPRS CONFERENCE28 August 2007

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The MEPRS program must incorporate internal management controls to support both Business Planning and Financial Improvement Program (FIP) initiatives.

These initiatives require an understanding of policy, organizational performance, and activity operations and are driving the MHS to Performance Based Decisions.

Management at all levels of the organization must focus on the following to ensure reliability of data:

Process inputs and outputs and internal controls

Internal management controls are defined as:

“Integration of activities, plans, attitudes, policies, systems, resources and efforts of the people of an organization working together to provide reasonable assurance that the organization will achieve its objectives and mission.”

Supporting Business Transformation - A Mandate for Integrated and Accountable Activity Processes

Objectives of Internal Control

Effectiveness and Efficiency

of Operations

Reliability of Financial Reporting

Compliance with Applicable Laws

and Regulations

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Decisions are Based on Data – Performance Based Decisions

Activity Leadership, Regional Offices & Policy Staffs

Use for Long-Range Strategic Decisions

Comptrollers and Managers

Use for Operating Decisions

Data is useful for measuring and answering “where we are”against planned mission goals and objectives.

Users of the Accounting Data

Transaction and Financial Cost Accounting Data (MEPRS/EAS) Must be Accurate, Timely and Reliable – Integrated Processes at the Activity Level are Required.

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Transaction and Managerial Reporting – Provides the full spectrum of Costs and FTEs to determine – “Unit Costs”

Status Quo – Costly Decision – Future Liability

Is our data auditable?

Outputs Drive Outcomes

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FY 06 Expenses – Navy Summary of MTF Labor Expenses

$3,096,521,036, 74%

$1,069,467,066, 26%

Personnel Dir. Exp. Including Contracts All Other Expenses

Military, Civilian and Contractor Labor

74% of Total Expenses

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FY 06 Expenses – Army Summary of MTF Labor Expenses

$4,166,487,601, 74%

$1,437,679,358, 26%

Personnel Dir. Exp. Including Contracts All Other Expenses

Military, Civilian and Contractor Labor

74% of Total Expenses

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FY 06 Expenses – Air Force Summary of MTF Labor Expenses

Personnel Dir. Exp. Including Contracts All Other Expenses

Military, Civilian and Contractor Labor

72% of Total Expenses

$2,518,384,635, 72%

$1,001,732,094, 28%

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Management Tool

Internal control is a powerful tool that management can leverage to:

Provide value and integrity at every step of each financial, business and program process;

Provide timely and accurate information for management decision-making;

Support the effectiveness and efficiency of every step of each financial, business and program process;

Provide continual feedback to management; and Provide trust and confidence in accounting and reporting practices.

Effective and efficient internal control allows management to focus efforts on its key mission as opposed to managing one crisis after another.

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Operational Assessment Program for Internal Processes

Assesses the resource management MEPRS/EAS Program.

Supports the Business Plan/Critical Initiatives for Improved Labor Reporting.

Useful tool to provide internal procedures which will assist with existing DoD, DFAS, DA, TMA, and MEPRS policies and procedures is provided below.

Microsoft Excel Worksheet

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MethodologyStep 1: Identify Key Business Processes and Significant Accounts

Significant accounts are accounts that individually or collectively could have a material effect on the financial report.

Financial Management Transformation Plan

Prioritize, manage and track deficiencies, redundancies and inefficiencies and remediation efforts agency wide.

Step 2: Identify Major Classes of Transactions

Major classes of transactions are those classes of transactions that are significant to the company's financial statements. Routine – Nonroutine – Accounting Estimate

Step 3: Identify Processes

The specific processes and document flow involved in each class of transactions.

Step 4: Identify and Document Sub-processes

Understand how transactions are initiated, authorized, recorded, processed, and reported. Understand the period end financial reporting process.

Step 5: Identify, Document and Assess Risks

Identify the points within each sub-process at which a misstatement could arise and assess the impact on managements assertions.

Step 6: Identify, Document and Assess Control Activities

Identify and assess the controls that management has implemented to respond to the risk. Assess Design Effectiveness: Effective – Moderately Effective – Not Effective

Step 7: Test Effectiveness of Control Activities

Test control activities to determine the extent to which the controls were applied, the consistency of their application, and who applied them. Assess Operating Effectiveness: Effective – Moderately Effective – Not Effective

Deficiencies, Redundancies

and Inefficiencies

Deficiencies, Redundancies

and Inefficiencies

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FY 08 MMIG Suggested Objectives and Goals for Labor

Objective: To improve military labor reporting in MEPRS/EAS.

Goal: 100% of military personnel time and expenses reported in compliance with expense business rules.

Data source:

— Service legacy system (SPMS, UCAPERS, EAS-SA)/DMHRSi is the system used to report and distribute time and expenses for military personnel.

Resource:

— The document embedded below provides the specific business rules for reporting available and non-available time/hours for MEPRS/EAS for all personnel types. Source: Revised DoD 6010.13-M (MEPRS Manual), Appendix 3.

Expense Reporting - Tri-Service Business Rules:

– The composite pay rates are determined by the DoD comptroller and are used for costing military labor in the accounting system and MEPRS/EAS.

DoD 6010.13-M_AP3

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FY 08 MMIG Suggested Objectives and Goals for Labor

Objective: To improve distribution of contract labor hours and expenses.

Goal: 100% of contract expenses are distributed to where the contract services are performed. Contracting “CLIN” labor distribution issues are forwarded to the Regional Commands. Regional Commands provide analysis of gaps. Financial Improvement Program (FIP) provides policy direction and addresses gaps.

Data source:

— Personnel time for contractors is provided by Service level legacy system (SPMS, UCAPERS, EAS-SA)/DMHRSi. However, the data source for the expenses are provided by the accounting system.

Distribution Example:

Resource:

— Service-level guidance, in support of proper distribution of contract services rendered is embedded below.

Emergency Room “BIAA”

Primary Care “BHAA”

Readiness (PRT) “GFAA’

If you worked 168 hours

60 hours = 36% or $2624.91

90 hours = 54% or $3937.36

18 hours = 10% or $729.14

Total salary = $7291.42

If you worked 204 hours

60 hours = 29% or $2114.51

126 hours = 62% or

$4520.68

18 hours = 9% or $656.23

Total salary = $7291.42

Difference $510.40 -$583.32 $72.91

FY 05 Contract Guidance

FY 06 Contract Guidance

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Defense Medical Human Resource System-internet (DMHRSi) and Internal Management Controls

EAS IV Assigned Personnel Report

All data elements must be correct and complete

Assigned FTE calculation for the EAS Interface file

Only displays those employees that have an organization at the MTF

EAS IV Summary View and Project View Reports

Summarizes DMHRSi human resource and labor cost information

Calculates FTEs by DMIS ID

Tool to use to validate workload against man-hours

Cost Reconciliation Reports

Compares hours and cost in Defense Civilian Payroll System (DCPS) to DMHRSi

Payroll correction

Ensures data accuracy

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FY 08 MMIG Suggested Objectives and Goals for “Cost Per Unit” Data

Objective: Improve reporting of departmental efficiency (i.e., production) and cost effectiveness (i.e., direct expenses and allocated expenses).

Goal: Improve MTF expense cost per unit data for inpatient, outpatient and ancillary data (i.e., where cost per is mainly attributed to labor expenses with limited output).

Goal: Less than 5% variance between MEPRS/EAS and the Service level Accounting system per MEPRS code (prior and current fiscal years).

Goal: Incorporate business planning analysis into POM projections (i.e. for different types of labor or decreased labor currently being POM’D).

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FY 08 MMIG Suggested Objectives and Goals for “Cost Per Unit” Data

Goal: Improve MTF expense cost per unit data for inpatient, outpatient and ancillary data. (i.e., where cost per is mainly attributed to labor expenses with limited output).

Resource:

The documents embedded below provide examples of the variance in cost per unit data for the same service due to under/over-reporting of labor expenses.

Failure to properly annotate readiness or other activities on timesheets/templates will result in an increase or decrease to the cost per visit.

FTEs WORKLOAD/ = $90Per Visit

FTEs WORKLOAD/ = $80Per Visit

TIME SHEET COMPLETED PROPERLY WITH 20% OF AVAILABLE TIME CHARGED TO administrative time AND READINESS.

TIME SHEET COMPLETED all available time charged to the clinic.

Provider Productivity Issues

Cost Per Example

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FY 08 MMIG Suggested Objectives and Goals for Financial Reconciliation

Goal: Less than 5% variance between MEPRS/EAS and Accounting at the MEPRS code level (prior and current fiscal years).

Data Source: — MEPRS/EAS

— Service Level Financial System

Resource:— The document embedded below provides a summarized Navy

reconciliation report displaying the percent variance by SEEC for FY 06 and four prior fiscal years.

FY 06 SMART EAS FIN REC

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Goal: Incorporate business planning analysis into POM projections (i.e. for different types of labor or decreased labor currently being POM’D).

Business Plan Critical Initiative – Requires a Internal Management Control Process

Provide a clearly stated issue to be addressed with a statement of current performance with variables or measures that are outside of acceptable performance standards.

Does the targeted issue for improvement have a stated performance measure or goal defined(i.e., will improve by X %)?

Does the plan identify requirements needed to ensure success (time, money, people, etc.)?

Is a method of monitoring articulated?

Is there an impact statement as to how success of the plan will improve the organizations/MTFs bottom line (i.e., control labor cost, result in lower costs such as cost per RVU, etc.)?

Efficiency and Cost Effectiveness

(Production and Cost to Produce)

FY 08 MMIG Suggested Objectives and Goals for Labor

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Internal Controls Over Financial Reporting

Designed to provide reasonable assurance regarding the reliability of financial reporting.

Monitor

Implement Controls

Develop Detailed Risk Strategy

Identify Risks Inherent to Processes and Procedures

Identify Processes and Procedures Required to Achieve Objectives

Identify Financial Reporting Objectives

Questions?