Financial Management: Providing a Foundation for Transition - AGA

8Positive opinions on A-123When the December 2004 revision of A-123first went into affect, some federal executiveswere doubtful of it, fearing another private sectorsolution that would not fit into governmentoperations. As shown in Figure 1, today threeout of four executives surveyed believe that theirefforts to comply with A-123 have had a positiveaffect on their financial statement audit, financialoperations, IT security or non-financial operations.They say that going through the circular’sprocess has strengthened controls and madeprogram managers more aware of their responsibilitiesin this area. Complying with the circularhas provided many with the resources and topexecutive support to do better process documentation,to correct control weaknesses and toeliminate poor practices.Ninety percent of executives who commented onA-123 said that their work on it has reduced therisk of financial waste, fraud and abuse. Reportsone executive, “Workingon A-123 helped usfind problems withimproper payments. As a result, we recoupedhundreds of millions of dollars.” Althoughthey did not always have such big results, threeout of four executives said that the resourcesthey invested in complying with the internalcontrol circular were worth the return. Somehave reduced compliance costs by coordinatingthe assessments done for A-123’s Appendix A(Internal Control Over Financial Reporting)and Appendix C (Requirements for EffectiveMeasurement and Remediation of ImproperPayments), such as taking one large sample ofaccounts payable for work on the requirementsof both Appendix A and Appendix C, instead ofdoing this separately.These are excellent results so it might seemlogical to keep going down the current path ofinternal control. However, the results mask aserious concern. Unless the government broadensthe scope and fosters integration of internal controlactivities, they may become a rote “check thebox” compliance items. That is what happenedto A-123 before its December 2004 revision andsubsequent high profile. It could happen again.Broader scopeMost CFOs focus on A-123’s Appendix A.However, financial reporting is only one ofthree control objectives under Section 2 of theFederal Managers Financial Integrity Act of 1982(FMFIA). The other two are effectiveness andefficiency of operations and compliance withapplicable laws and regulations. Complying withFMFIA aside, sound controls on operationsreduce the risk of poor performance of an entity’smission. That is more important than getting thefinancial numbers right, and should receive asmuch or more attention as controls over financialreporting. It is also where CFOs can broaden theirroles and increase the value they add to an entity.