Peggy Johnson

1
Managers Internal Control Program American
Society of Military Comptrollers Audio Conference

• Peggy Johnson
• Managers Internal Control Program Coordinator
• Office of the Under Secretary of Defense
  (Comptroller)
• April 25, 2006

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Internal Controls Can Help Prevent Fraud!!
3
Federal Managers Financial Integrity Act
(FMFIA)

• FMFIA states that Agency Heads will
• Establish an effective system of internal
  controls
• Assess the effectiveness of internal controls
• Annually report assurance (Section 2 and Section
  4)
• Identify material weaknesses
• Describe plan and schedule for resolution

• OMB Circular A-123 Federal Agency
  requirements for FMFIA
• Managers Internal Control Program -- DoD
  policy for FMFIA and OMB A-123
• DoD Instruction 5010.40, Managers Internal
  Control Program Procedures
• FY 2006 Guidance for the Preparation of the
  Statement of Assurance
• Part I FMFIA Overall Guidance
• Part II FMFIA Over Financial Reporting
  Guidance (Appendix A)
• Part III FY 2006 Statement of Assurance
  Scorecard Criteria
• Various DoD Components Guidance i.e., Army,
  Air Force Regulations, etc.

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Internal Controls Same as Management Controls

• Management (internal) controls are the process
  that helps ensure mission objectives are met
• Helps ensure accountability
• Does not guarantee success or ensure against
  waste,
• fraud, or mismanagement, but helps lessen RISK
• Three objectives of internal controls
• Effective and efficient operations
• Reliable financial reporting
• Compliance with applicable laws and regulations

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Internal Control -- Military Example
Mission Objective Obtain proficiency in
parachuting without injury.
Risk Parachute fails to open properly due to
incorrect rigging.
Internal Control Final jumpmaster safety
inspection of parachute rigging.
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ExampleInternal Controls Were Not Being Used!!
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Ineffective Controls Adversely Affect Both
Operations and Financial Statements .
Foxhole
Factory
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DoD Component Heads That Submit Statement of
Assurance to Secretary of Defense

• Secretaries of the Military Departments
• (Includes Army, Navy/Marines, and Air
  Force)
• Office of Secretary of Defense (OSD) Director of
  Administration and Management Consolidated OSD
  Statement
• (Includes all OSD Principal Staff
  Assistants and DoD Field Activities)
• Chairman of the Joint Chiefs of Staff
• Commanders of the Combatant Commands
• (Includes EUCOM, TRANSCOM,
  NORAD/NORTHCOM, PACOM, SOUTHCOM,
• JFCOM, CENTCOM, SOCOM, STRATCOM)
• Inspector General, Department of Defense
• Directors of the DoD Agencies
• (Includes Defense Advanced Research
  Projects Agency, Defense Business
• Transformation Agency, Defense
  Commissary Agency, Defense Contract Audit
• Agency, Defense Contract Management
  Agency, Defense Finance and
• Accounting Service, Defense
  Information Systems Agency, Defense Intelligence
• Agency, Defense Logistics Agency,
  Defense Security Cooperation Agency,
• Defense Security Service, Defense
  Threat Reduction Agency, Missile Defense
• Agency, National Defense University,
  National Geospatial-Intelligence Agency,
• National Security Agency / Central
  Security Service, Pentagon Force Protection
• Agency, and Uniformed Services
  University of Health Sciences)

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DoD Managers Internal Control ProgramPartnership
Pyramid
LEADERSHIP
PROGRAM EXECUTION
Secretary of Defense
DoD Managers Internal Control (MIC) Program
Coordinator
DoD Component Heads
DoD Component MIC Program Coordinators
Assessable Unit Managers
Assessable Unit Managers MIC Program Coordinators
Assessable Unit Managers
Sub-Assessable Unit Managers MIC Program
Coordinators
Assessable Unit Managers
Sub-Assessable Unit Managers MIC Program
Coordinators
Assessable Unit Organizational reporting unit.
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Managers Internal Control Program Two Processes
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Components Required to Conduct BothFMFIA Overall
FMFIA Financial Reporting Processes

• Department of Army
• Department of Navy
• Department of Air Force
• United States Special Operations Command
• Defense Advance Research Projects Agency
• Defense Commissary Agency
• Defense Contract Audit Agency
• Defense Finance and Accounting Service
• Defense Information Systems Agency
• Defense Intelligence Agency
• Defense Logistics Agency
• Defense Security Service
• Defense Threat Reduction Agency
• Missile Defense Agency
• National Geospatial-Intelligence Agency
• National Reconnaissance Office (Certain
  information)
• National Security Agency / Central Security
  Service
• Office of the Secretary of Defense (Medicare
  Eligible Retirement Health Care Fund, Military
  Retirement Trust Fund, Chemical Biological and
  Defense Program, and Defense Health Program)

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FY 2006 Financial Reporting Focus Areas

• Fund Balance with Treasury (CASH)
• Investments
• Real Property
• Military Equipment
• Federal Employees Compensation Act
• Environmental Liabilities
• Health Care
• Appropriations Received
• Entities with Unqualified Opinions
• Areas where assertions completed
• Areas where assertions will be completed by FY
  2006 year end

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DoD Managers' Internal Control Program
OMB A-123
FMFIA Overall Process


Supply
Mfg, Maint, Repair
Property Mgmt
Force Readiness
Commo, Intel Secur
Contract Admin
Info Tech
Procurement
Personnel Org
Major System Acq
Comptroller RM
RDTE
Security Assist
DoD Senior Assessment Team
Support Svcs
FMFIA Over Financial Reporting
Appendix A
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Internal Controls Relationship to Military
Operations

• Those who would argue that Internal Controls have
  no place in a combat theater have never
• Conducted a pre-combat inspection
• Conducted a rehearsal
• Crossed a line of departure on time
• Engaged an enemy with precise fire
• Conducted battlefield refuel rearm
• Performed low light, short field landing

Member of US Special Operations Command FY
2005.
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Managers Internal Control Program Trainingin
the War Zone
Multi-National Forces Iraq Baghdad, Iraq, Feb 6
15, 2006
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Value to Military in War Zone

• The Managers Internal Control Program helps
• Save lives
• Tighten up processes to ensure mission success
• Provide analytical approach to assess
  effectiveness
• Conduct more efficient processes
• Create an atmosphere of reliability,
• credibility and confidence
• Produce more positive work environment
• Organizations can survive an audit
• Standardize so that problems will come to light
• Improve operations and force protection
• Deter fraud / waste / abuse

Provided by members of Multi-National Forces
Iraq, February 2006
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Results FY 2005 Material and Systemic Weaknesses

• 46 Section 2 Weaknesses Beginning of FY 2005
• 22 Corrected (22 Material, 0 Systemic)
• 10 New (8 Material, 2 Systemic)
• 1 Transferred to Non-DoD Agency
• 33 Weaknesses Remaining at end of FY 2005
• 11 Systemic
• 22 Material
• 1 Section 4 Ongoing System Nonconformance
  Weakness

Internal Control tool, plan, process that helps
ensure, but does not guarantee mission
accomplishment.

• Material Affecting single Component
• Systemic Affecting multiple Components

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Results FY 2005 Financial Material and Systemic
Weaknesses

• 17 Section 2 Financial Weaknesses Beginning of FY
  2005
• 8 Corrected (8 Material, 0 Systemic)
• 4 New (4 Material, 0 Systemic)
• 13 Weaknesses Remaining at end of FY 2005
• 5 Systemic
• 8 Material

Internal Control tool, plan, process that helps
ensure, but does not guarantee mission
accomplishment.

• Material Affecting single Component
• Systemic Affecting multiple Components