OMB Circular A-123 Update: Where We Are and Where We Are Going

1
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

2
"Common sense is the knack of seeing things as
they are, and doing things as they ought to be
done."

• Harriet Elizabeth Beecher Stowe

3
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

4
History of the A-123

• Federal Managers Financial Integrity Act of 1982
• Section 2 Evaluation of systems of internal
  accounting and administrative (i.e.,
  programmatic) control
• Section 4 Evaluation of accounting systems
  conformance to principles, standards, and related
  requirements
• OMB Circular A-123 FY 1982
• Not a clear focus on either programmatic or
  financial controls
• Generic guidance provided on how to implement

5
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

6
History of the A-123

• OMB Circular A-123 FY 2005
• Clear focus on internal control over financial
  reporting
• Changed terminology from management control to
  internal control
• Introduced Appendices
• 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

7
History of the A-123

• OMB Circular A-123 FY 2005
• Appendix A, Internal Control over Financial
  Reporting
• 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

8
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

9
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

10
What are we doing this year?

• Update Frequently Asked Questions
• 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  

11
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?

12
Resources

• http//www.whitehouse.gov/omb/circulars/a123/a123_
  rev.pdf
• http//www.cfoc.gov/documents/Implementation_Guide
  _for_OMB_Circular_A-123.pdf
• http//www.whitehouse.gov/omb/circulars/a123/faq_a
  123_appx_a.pdf