Internal Controls Over Financial Reporting

1
Internal Controls Over Financial Reporting
Headquarters U.S. Air Force
I n t e g r i t y - S e r v i c e - E x c e l
l e n c e

• Ms. Patricia Ann Franklin

2
Agenda

• OMB Circular A-123 versus Appendix A, Part II
• Air Force Approach
• Actions Taken
• Communication
• Positive Effects

3
OMB Circular A-123 Vs Appendix A, Part II

• OMB Circular A-123 Managements Responsibility
  For Internal Controls
• Governmental Equivalent Of Sarbanes Oxley
• Emphasis On The Entire Organizations Internal
  Controls
• Annual Statement Of Assurance Reporting
  Requirement

• OMB Circular A-123, Appendix A, Part II -
  Internal Controls Over Financial Reporting
• Additional Requirements Levied on Financial
  Reporting Processes
• Emphasis On Financial Reporting Internal Controls
• Separate Tab To The Annual Statement Of Assurance
  To Report Findings Specific To Financial
  Management Processes

4
Air Force Approach

• Level of Detail
• Cradle To Grave - Documented At The Lowest
  Levels
• Predominate Processes Summarized And Delivered To
  Office of the Under Secretary of Defense
  (Comptroller) (OUSD(C))
• Bottom Up Top Down
• Transactions Tracking To Financial Line Item
• Financial Line Item Tracking To Transactions
• Identified Each Handoff And Assessed Risks
• Oversight
• Air Force Support At All Functional Levels
• Senior Assessment Team (SAT)
• Audit Committee
• Accountability and Financial Management
  Integrated Process Teams (AFM IPTs) with Process
  Level Chairs and Sub-IPTs for detail levels

5
Air Force Approach

• Senior Assessment Team (SAT) also referred to as
  the Executive Steering Committee (ESC)
• Integrated Process Teams (IPTs)
• Functionals and Functional Managers are the
  owners of the processes documented
• Quality Assurance (QA) Team
• Audit Committee

Personnel Engaged
6
Air Force Approach

• Implemented with Tools Already Developed
• Partnered With Department of Defense (DoD)
  Service Components and Non-DoD Agencies
• Focused the Efforts on Entire Process to
  Accurately Report on the Annual Statement of
  Assurance

7
Actions Taken

• Air Force Enhancements
• Communicated to Focus Area personnel this effort
  is a priority
• Created an Air Force Appendix A Guideline
  Document with Detailed Implementation Criteria,
  Format, and Samples and
• Provided Training Classes
• Created a Quality Assurance Team to Review Format
  and Content
• Maintained Continuous Communication with OUSD(C),
  ODOs, and Management
• Provided Lessons Learned Throughout Process

8
Actions Taken

• Enhanced the Tools Already In Place
• FIAR Discovery, Correction and Validation
  Stages
• MICP Management Internal Control Program
• PAD Process Analysis Documents
• Documentation to Incorporate Cradle to Grave
  Processes
• Determines the Stability of Financials and
  Compensating Controls
• Provides Management Recommendations for ERPs

More In Depth Corrections Completion Timelines
Throughout Process
Started with what we knew and built a better
product
9
Communication
Communication
Partnership is Key
10
Positive Effects

• Military Equipment
• Identified actions to be addressed at the core
  level of recording assets.
• Material weakness reported on the Annual
  Statement of Assurance.
• Corrective Action Plan updated in FIAR.
• Environmental Liabilities
• Identified concerns regarding definitions,
  timing of reporting, ownership and how to report.
• Reportable Condition identified.
• Corrective Action Plan updated in FIAR.
• Real Property
• Identified concerns regarding timing of
  reporting, ownership, how to report and training.
• Material weakness reported on the Annual
  Statement of Assurance.
• Corrections to the FIAR.

11
Positive Effects

• The entire process from Discovery to Correction
  to Validation was clearly defined and timely
  executed from the due diligence of the OMB A-123
  Appendix A documentation.
• Testing Found an Error in Reporting

Failed Test Re-performed with new data files at
end of quarter to validate corrective
action. Completed on 6/30/2006
Test Plan Results Found on 5/1/2006
Mapping Correction Completed on 5/12/2006
12
Questions

• Notes