Transcript OMB Circular A-123: Sustaining an Effective Internal

OMB Circular A-123
Update: Where We Are and
Where We Are Going
Dana James
Office of Federal Financial Management
Office of Management and Budget
May 8, 2008
"Common sense is the knack of
seeing things as they are, and
doing things as they ought to be
done."
Harriet Elizabeth Beecher Stowe
What are the objectives
of the A-123?
 Facilitate an effective internal control environment resulting in a culture
steeped with integrity and accountability
 Facilitate a more in-depth look at the internal controls resulting in more
streamlined and standardized processes
 Facilitate more interaction and cooperation between financial and program
offices resulting in a better understanding of the overall organization and
current processes
 Facilitate a better understanding of existing weaknesses resulting in more
pointed corrective actions
 Facilitate the integration of internal control reviews – FMFIA, FISMA, audit
remediation, etc. - resulting in more efficient procedures
History of the A-123
 Federal Managers’ Financial Integrity Act of 1982
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Section 2 – Evaluation of systems of internal
accounting and administrative (i.e., programmatic)
control
Section 4 – Evaluation of accounting system’s
conformance to principles, standards, and related
requirements
 OMB Circular A-123 – FY 1982
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Not a clear focus on either programmatic or
financial controls
Generic guidance provided on how to implement
History of the A-123
 OMB Circular A-123 – FY 1986
 Still no clear focus on either programmatic or financial
controls
 Provided more guidance on how to implement; e.g.,
component inventory, responsible officials, risk ratings,
planned reviews, results of reviews
 OMB Circular A-123 – FY 1995
 Clear focus on programmatic controls
 Specific linkage to GPRA
 CFO Act requirements referenced as a supporting
function
History of the A-123
 OMB Circular A-123 – FY 2005
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Clear focus on internal control over financial
reporting
Changed terminology from “management control”
to “internal control”
Introduced Appendices:
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Appendix A – Internal Control over Financial Reporting FY 2005 (specific methodology requiring more rigorous
testing and documentation; separate assurance)
Appendix B – Government Charge Cards – FY 2005
Appendix C – Improper Payments – FY 2006
History of the A-123
 OMB Circular A-123 – FY 2005
 Appendix A, Internal Control over Financial Reporting
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Documentation of assessment methodology, key
processes and controls, testing results
Direct testing by management
New assurance statement; subset of FMFIA
assurance statement
As of June 30; updated through PAR submission
Where are we now?
 In third year of Appendix A implementation
 Agencies beginning to move beyond compliance into
efficiencies
 Preparing assurances on the internal control
environment in place as of June 30 and update for new
information as of September 30 - correction of existing
weaknesses or identification of new weaknesses
 Final assurance statements published in Performance
and Accountability Reports on November 15
What are our major challenges?
 Better integration with program offices – A-123 and Appendix A
requirements still viewed as only a CFO effort
 Responsibility without authority
 Better integration with other internal control reviews to reduce
duplication of effort
 Complex (and sometimes decentralized) financial operations
 Better assimilation into culture of organization to make the assessment
more routine
 Human capital needs
 Overwhelmed by compliance
What are we doing this year?
 Update Frequently Asked Questions
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Risk assessments
Rotational testing
Integration with other reviews
How to report findings (Section 2 Financial
reporting vs. Section 4 vs. FFMIA)
 Distribute more feedback/statistics to the community on what everyone
else is doing (e.g., what key processes everyone has identified)
 Data call for best practices
Where are we going?
Questions to ask:
 Do we know what our risks are?
 Are we assessing risk for the entire
organization and implementing the
appropriate controls for that risk?
 Have we focused too much on Appendix A
versus areas other than financial reporting?
Resources
 http://www.whitehouse.gov/omb/circulars/a123/a123_rev.pdf
 http://www.cfoc.gov/documents/Implementation_Guide_for_OM
B_Circular_A-123.pdf
 http://www.whitehouse.gov/omb/circulars/a123/faq_a123_appx_
a.pdf