R 121224Z MAR 13 ALCGFINANCE 012/13 SUBJ: MONTHLY FINANCIAL AUDIT STATUS UPDATE - FEBRUARY/MARCH 2013 1. This is the seventeenth in a monthly series of ALCGFINANCE messages intended to improve financial audit communications and information sharing throughout the Coast Guard. 2. Current Status: A. The Coast Guard received a qualified opinion on its fiscal year (FY) 2012 financial statements. The independent auditor greatly expanded the scope of its work in FY12 and we passed four of the five financial statements with no major audit findings against us. The qualification resulted from our inability to provide documentation to substantiate cost, date in service, and depreciation for our capitalized personal property assets (aircraft, vessels, boats, software, electronics, vehicles, and general) and the cost information for assets in Construction in Progress on our balance sheet. B. The Department of Homeland Security (DHS) is being pressed by Congress and the Executive Branch to receive an unqualified opinion on its financial statements as soon as possible. While the Coast Guards financial statements are merely a part of the consolidated DHS financial report, we are a significant part. As such, DHS cannot pass the audit without an unqualified opinion on all five of the Coast Guards financial statements. DHSs strategy to become audit compliant in the shortest period of time was to reissue the FY12 financial statements early in FY13 and have the independent auditor evaluate the updated information for areas that we failed in FY12. The independent auditor returned in December and has been auditing documentation throughout January and February. We anticipate this work will continue through the end of April, and we are optimistic that we will be able to substantiate the account balances to receive a clean opinion on the restated FY12 financial statements. C. Financial statement audits are required annually, and the Coast Guard is preparing for the auditors to commence audit planning and test work for the FY13 financial statements. There will be an entrance conference with senior Coast Guard leadership, DHS, and the independent auditor in late March. In the coming months, FY13 test work will begin. 3. Audit 101: A. The last two monthly financial statement update messages focused on asset capitalization. This month, we will discuss physical inventories. Over the past several years, the Coast Guard has conducted physical inventories on its capitalized personal property twice each year at each Operating Facility Address Code (OPFAC) and all sub-units (e.g. Stations Small, Marine Safety Detachments, Resident Inspection Offices, etc), with each OPFAC accounting for their sub-units specifically in the cover memo. However, we have not yet been able to perform a similar inventory for our real property assets and interests or for heritage assets. B. Procedures have been developed to conduct a complete inventory of both real and personal property for each OPFAC and all sub-units. The inventory procedures call for floor-to-record and record-to-floor verifications. An official plot plan will be produced for all real property assets at each site under each OPFAC, and count team members at each OPFAC will perform the inventory at all sites, including sub-units. Conducting the real property and personal property inventory simultaneously will allow us to ensure that each capitalized asset is properly designated and accounted for. C. In April, the Coast Guard will conduct a service-wide personal property inventory. In conjunction with the April inventory, we will conduct a pilot real and personal property inventory at all units located within the Sector North Carolina area of responsibility. In June, the Coast Guard will conduct a follow-on real property inventory for the Coast Guard units with the highest real property cost. In September, the Coast Guard will conduct a service-wide combined real property and personal property inventory necessary for the end of fiscal year financial reporting. D. As part of the audit process, we determined that recordkeeping and accountability of heritage assets have not been maintained in accordance with Coast Guard policy. In March, we will be conducting an enterprise-wide physical inventory of personal property heritage, multi-use heritage, and Coast Guard Art Program assets, in which each unit needs to participate and submit a report, whether or not the unit currently holds any heritage assets in its inventory. Heritage assets are defined as any historical property identified by COMDT (CG-09224) and retained by the Coast Guard because of its historic, cultural, educational, or artistic value that helps illustrate the military, social, and cultural heritage of the Coast Guard and its predecessor agencies. E. In order to reduce capitalized property physical inventory cycles from semi-annual inventories to our goal of annual inventories, the Coast Guard must demonstrate the ability to comply with the inventory and reporting procedures. While most units have been able to conduct the procedures, fully account for all property, and submit reports during the inventory period, a substantial number of units fail to understand the procedures, submit reports with errors, or do not submit a complete report during the inventory period. Unit points of contact shall read and understand the inventory procedures prior to the inventory period, conduct thorough training for count teams, engage the COMDT (CG-844) staff with procedure questions prior to the inventory period, and commence the physical inventory early in the inventory period. 4. Audit Tips: A. During audit remediation activities, we continue to uncover stockpiles of capitalized personal property and/or centrally-managed operating materials and supplies (OM and S) that are not recorded in financial systems of record. If your unit manages a warehouse or storeroom, you should understand how the items under your control are inventoried and reported in Coast Guard financial statements. The Coast Guard manages many different types of assets: capitalized and non-capitalized real property, capitalized and non-capitalized personal property, centrally-managed OM and S, shop stock, general-use consumable lists (GUCL), and other items. Capitalized and non-capitalized personal and real property are tracked in Oracle Fixed Assets (OFA) and the appropriate subsidiary system (e.g. Aviation Logistics Management Information System (ALMIS) for aviation and Shore Asset Management (SAM) system for real property). Centrally-managed OM and S should be managed in a logistics system (e.g. ALMIS, and Naval and Electronics Supply Support System (NESSS)) when they are at the warehouse in Baltimore or Elizabeth City or at a defined remote location or defined remote stockpoint. Items issued to the unit will be tracked based on CG-wide policy, logistics requirements (e.g. using Configuration Management Plus (CMPLUS), local best practices, and unit-level guidance. Shop stock is typically accountable property that is tracked for unit-level needs, but not required to be a part of the accounting system (OFA). GUCL are items like paper towels and pencils that are not required to be tracked. B. The Commandant and Master Chief Petty Officer of the Coast Guard recorded a short video message earlier this month to demonstrate their appreciation for your continued efforts in support of Coast Guard audit readiness. The video message can be found at the following link: https://cgvi.uscg.mil/media/main.php/f/CGFY12AUDIT. 5. Ms. Margo Sheridan, Director of Financial Operations/Comptroller, sends. 6. Internet release authorized.