Government Accountability in Times of Crisis

1. Government Accountability in Times of Crisis Northern Virginia Association of Government Accountants March 15, 2006

2. Accountability Is Key • The concept of accountability for public resources has always been key in our nation’s governing process and a critical element for a healthy democracy. • Legislators and public officials need reliable information about the cost, efficiency, and effectiveness of government programs for the difficult decisions that lay ahead regarding the role of government and long-term fiscal challenges. • The public demands results and government failures become the focus of extreme scrutiny. • Accountability is especially crucial in the current environment.

3. Internal Control Is Integral to Accountability • Collectively, internal controls are an integral component that are built into an organization’s management and operations to provide reasonable assurance that the organization achieves its objectives of effective and efficient operations, reliable financial reporting, safeguarding of assets and government resources, and compliance with laws and regulations.

4. OMB on Internal Control Management has a fundamental responsibility to develop and maintain effective internal control. The proper stewardship of Federal resources is an essential responsibility of agency managers and staff. Federal employees must ensure that Federal programs operate and Federal resources are used efficiently and effectively to achieve desired objectives. Programs must operate and resources must be used consistent with agency missions, in compliance with laws and regulations, and with minimal potential for waste, fraud, and mismanagement. OMB Circular A-123, Management’s Responsibility for Internal Control

5. Internal Control in the Federal Government • OMB Circular A-123 and the statute it implements, the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) are at the center of the existing federal requirements to improve internal controls. • FMFIA requires the agency head to annually evaluate and submit a report to the President and the Congress that includes • (1) a statement on whether there is reasonable assurance that the agency’s controls are achieving their intended objectives and • (2) a report on material weaknesses in the agency’s controls.

6. Effective Internal Control: At the Heart of Accountability—GAO Perspective Federal policymakers and program managers are continually seeking ways to better achieve agencies’ missions and program results, in other words, they are seeking ways to improve accountability. A key factor in helping achieve such outcomes and minimize operational problems is to implement appropriate internal control. Effective internal control also helps in managing change to cope with shifting environments and evolving demands and priorities. As programs change and as agencies strive to improve operational processes and implement new technological developments, management must continually assess and evaluate its internal control to assure that the control activities being used are effective and updated when necessary. The Comptroller General’s Standards for Internal Control in the Federal Government November 1999

7. Internal Control Is An Ongoing Process • Internal controls are not one event, but a series of actions and activities that occur throughout an entity’s operations on an ongoing basis.They are pervasive and inherent in the way management runs the organization and critical to an entity’s mission. • Effective internal control not only applies to a government entity’s current operations, but helps in managing change to cope with shifting environments and evolving demands and priorities. • As government entities are asked to respond to new circumstances and demands, management must continually assess and evaluate its internal control to assure that the control activities being used are effective and updated when necessary. • A fundamental component of good internal control is being ready to respond when called upon.

8. Government Managers Have Unique Responsibilities • Managers and heads of government programs and entities are responsible for integrating internal control into all government operations in a cost beneficial manner. • At the operational level, government managers have a stewardship obligation to achieve their mandated missions to serve the citizens while using taxpayer dollars appropriately—preventing fraud, waste and abuse. • While government financial managers have a unique responsibility in helping government organizations and officials design and implement proper internal control, internal control is primarily the responsibility of the program manager.

9. A Simple Way to View the Concept of Internal Control Internal control is a tool to help ensure that what you want to happen happens, and what you want to avoid is avoided. Yours Truly

10. An Even Simpler Way What do you lose sleep over? Gerry Riso & Dick Willett

11. Role of Government Auditors • While managers and heads of government programs and entities are responsible for implementing internal control in all government operations, government auditors have a special responsibility for evaluating overall accountability of government programs and making recommendations for improvements. • Government auditors are generally responsible for evaluating the following types of questions with regard to specific programs or uses of funds: • Are government services being provided efficiently, economically, and in compliance with laws and regulations? • Are programs achieving their objectives, and at what cost? • Is management financial and performance reporting fair and accurate? • Are the financial statements fairly stated? • How can management, decision making, accountability, and oversight be improved?

12. Role of Government Auditors • The auditor will need to look at whether internal controls were properly designed and implemented. Even if the auditor has not been asked to specifically evaluate internal controls, consideration of internal control is a basic function for government financial and performance audits. • The Comptroller General’s Government Auditing Standards have specific requirements for the auditor’s consideration of internal control in planning the job, in designing the job, and in reporting. The Standards explain that the audit should • be adequately planned • allow the auditor to obtain an understanding of internal control as it relates to the specific objectives and scope of the audit • consider whether specific internal control procedures have been properly designed and implemented and placed into operation. • Auditors are also required to include in the audit report the scope of the work on internal control and any significant deficiencies in internal control found during the audit.

13. This Leads Us To Katrina • We had a huge breakdown in control. Everyone wanted to know: • Who • What • Where • When • How • Why • Six months later, people are still asking: “Who’s on first?”

14. Times of Crisis Can Teach Us Important Lessons Bad times have scientific value. These are occasions a good learner would not miss. Ralph Waldo Emerson

15. A Challenge or An Opportunity? We are continually faced by great opportunities brilliantly disguised as insoluble problems. Lee Iacocca

16. Risks, Opportunities, and Challenges • Katrina has presented an unprecedented need for government assistance. • Significant amounts of taxpayer funds will be used to assist victims and begin a long and costly reconstruction effort. • Coordination among all levels of government will be critical. • The government financial manager’s skills and experience can help provide accountability and control over the relief effort.

17. GAO’s Multifaceted Role Post-Katrina • Reaching out to relevant congressional committees, federal IGs, and state and local auditors. • Addressing federal, state, and local hurricane preparation response and recovery activities. • Determining what went well, what did not, and what lessons learned are critical to improving government’s abilities to do better in the future. • Assessing basic accountability over federal monies. • Coordinating our efforts with the accountability community to ensure appropriate oversight of federal programs and spending, to effectively utilize resources, and to avoid duplication.

18. Key Themes Four key themes underpin many of the challenges encountered in the response to Katrina and reflect lessons learned from past disasters. These include the central importance of • Clearly defining and communicating leadership roles, responsibilities, and lines of authority for response in advance of a catastrophic disaster. • Clarifying the procedures for activating the National Response Plan and applying them to emerging catastrophic disasters. • Conducting strong advance planning and robust training and exercise programs. • Strengthening response and recovery capabilities for a catastrophic disaster.

19. GAO’s Forensic Work Finds Control Weaknesses in FEMA’s Expedited Assistance Program • FEMA faced the formidable challenge of providing at least some initial assistance to over a million people quickly with minimal “red tape,” while having sufficient controls in place to provide assurance that benefits were paid only to eligible individuals and households. • The Individuals and Households Program (IHP) provides financial assistance to individuals and households who, as a direct result of a major disaster, have necessary expenses and serious needs that cannot be met through other means. • IHP includes temporary housing assistance, real and personal property repair and replacement, and other necessary expenses. • FEMA activated expedited assistance to provide $2,000 in fast track money to eligible disaster victims to help with immediate, emergency needs of food, shelter, clothing, and personal necessities.

20. GAO’s Forensic Work Finds Control Weaknesses in FEMA’s Expedited Assistance Program • Weaknesses in the process to review registrations for disaster relief and approve assistance payments leave the government vulnerable to fraud and abuse. • Using falsified identities, bogus addresses, and fabricated disaster stories, we applied for disaster assistance over the telephone and obtained several $2,000 expedited assistance payments. • FEMA made duplicate expedited assistance payments to about 5,000 of the nearly 11,000 debit card recipients—once through the distribution of debit cards and again by check or electronic funds transfer. • While debit cards were used predominantly to obtain cash, food, clothing, and personal necessities, a small number were used for adult entertainment, bail bond services, a $1,300 handgun, an $1,100 wedding ring, a $450 tattoo, and alcohol.

21. NFC: A Success Story In A Time of Crisis • Foresight • Disaster Planning and Recovery • Risk Mitigation • Leadership

22. Where Do We Go From Here? It's tough to make predictions, especially about the future. Yogi Berra

23. Where Do We Go From Here? • So where does a government manager or accountability professional start? • First, don’t think about internal control as a compliance exercise, but rather an essential element of operations. • In many government environments, requirements already exist for assessment and reporting on specific aspects of controls. After a number of years, these efforts can start to look like paperwork compliance exercises. It is easy to fall into an attitude of complacency and a feeling that everything is under control because the minimal statutory or regulatory requirements are being met. • It is critically important that internal controls be seriously considered as an integral part of an agency’s mission and operations.

24. Where Do We Go From Here? • Second, evaluate the work that is already being done in internal controls as part of the agency’s routine operations, and determine the current state of internal controls. • Chances are a lot is already being done, but it is now time for government entities to re-evaluate internal control activities. Managers need to ask the following questions: • To what extent are the current assessment and reporting efforts truly dealing with the substance of internal control? • How do current efforts need to be expanded or improved to meet management’s need for reasonable assurance that controls are functioning as intended and that overall risk to the entity is reduced to an appropriate level? • Are there special fraud risks that need to be mitigated through internal controls?

25. Where Do We Go From Here? • Third, determine whether a “gap” exists between the current state and the desired state of internal controls, and take action to close any gaps. • Internal control should provide reasonable, but not absolute assurance, so professional judgment will be needed to determine whether and when risk has been lowered to an acceptable level. • Management needs to determine the acceptable level of risk, and take action to improve internal control procedures, management, assessment, and monitoring, and continuous improvement to mitigate risk to acceptable levels.

26. Where Do We Go From Here? • In the final analysis, for any government organization to work effectively, the people at the top need to ensure that key participants in the system have integrity, that regular and reliable information is provided on program effectiveness and cost, and that accountability exists throughout the system. • The system should provide incentives for people to do the right thing, adequate transparency to ensure that people will do the right thing, and accountability mechanisms in case people fail to do the right thing. In simple terms, these should be the ultimate objectives of internal control systems in government organizations.

27. Change Is the Norm Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes: it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm. Peter F. Drucker

28. A Final Thought If we don't change direction soon, we'll end up where we're going. Professor Irwin Corey (comedian)