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 system’s 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_OM B_Circular_A-123.pdf http://www.cfoc.gov/documents/Implementation_Guide_for_OM B_Circular_A-123.pdf http://www.whitehouse.gov/omb/circulars/a123/faq_a123_appx_ a.pdf http://www.whitehouse.gov/omb/circulars/a123/faq_a123_appx_ a.pdf