Financial Management: Providing a Foundation for Transition - AGA

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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.
9Table 1:Executives’ rating of internal control effort integration within their entities(1 = strongly disagree, 4 = strongly agree)Statement1. Internal control efforts are well integrated across functions such asfinancial management, IT, security, human capital and operations.2. The CFO and other CxOs (or their equivalent) work together tointegrate their internal control efforts.3. The entity supports the integration of internal controls with an entitywiderisk management approach.Averageagreement rating1.92.02.4This is why some of our executives want to seeAppendix A requirements reduced or at leastkept the same. They think that channelingresources to controls over program and entityperformance and related reporting will deliver abetter return on investment.Integration neededIdeally, an entity will integrate the work ofmanaging and reporting on financial, operationaland compliance controls. Unfortunately, surveyresponses to Statements 1 and 2 in Table 1 showthat financial executives have lukewarm opinionsabout internal control integration in theirentities. In the table, a score of 1 means strongdisagreement and 4 means strong agreement.“CxOs” refers to chief information officers, chiefhuman capital officers, chief acquisition officersand other chiefs of specific functions.According to some executives, a barrier toimproving the agreement scores in Table 1 is thatCxOs in an entity say they “own” their part ofthe control structure. This stovepipe mentalitygets in the way of controls for processes thatcut across organizational boundaries. Everyonehas a role in internal control, and all must worktogether on it.“Don’t stovepipe internal controls. Integrate acrossfunctions—A-123, FISMA, acquisition requirements, HRcontrols. Use A-123 as the framework and add other controlreview requirements into a single framework with onetimeline, one milestone list and one plan.”—An executiveRisk managementStatement 3 in Table 1 is important to the futureof controls, because an entity-wide risk managementapproach leads to setting cross-cuttingpriorities for risk mitigation. Many entities, andsometimes the whole national government, lacka sense of priority when it comes to controls.Better risk assessment and a focus on managingrisk would make control activities less costly and
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Page 4 and 5: 2Table of contentsAbout the Associa
Page 6 and 7: 4Road to transformationReviewing th
Page 8 and 9: 6government decision making. From t
Page 12 and 13: 10more likely to add value to opera
Page 14 and 15: 12• Better guidance and clearer r
Page 16 and 17: 14Cost/benefit analysis and targete
Page 18 and 19: 16• Many executives say their peo
Page 20 and 21: 18Some CFOs report success in reduc
Page 22 and 23: 20SystemsSurvey respondents listed
Page 24 and 25: 22the top of those that they want c
Page 26 and 27: 24Financial statements and audits:
Page 28 and 29: 26IG office, as it is when the audi
Page 30 and 31: 28ConclusionDesign by www.sparkdesi
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Financial Management: Providing a Foundation for Transition - AGA

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