Managing for Results: Integrating Performance and Controls FY 2007 Department of Defense Managers Internal Control Prog

1. Managing for Results:Integrating Performance and ControlsFY 2007 Department of Defense Managers' Internal Control Program Conference National Defense UniversityDecember 7, 2006 Presented by: Adam Goldberg Chief, Financial Integrity and Analysis Office of Federal Financial Management Office of Management and Budget

2. 2 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 Our main goal of the A-123 is to foster an effective internal control environment in the Federal government. We accomplish this overarching goal with more targeted goals or milestones, such as: Taking a more in-depth and honest look at the current internal control environment. We cannot improve things if we are not truly honest about where we are now. Having more communication and cooperation between the CFO shop and the program offices. This is a joint effort, since most of the financial transactions are initiated in the program offices. Both the financial and program offices need to be on the same page and working together. Improving corrective action plans. Corrective actions need to be measurable to ensure that the intended purpose is achieved and the corrective actions are on target. Integrating internal control reviews. There are opportunities for agencies to potentially tweak existing reviews to meet several requirements rather than layering one review on top of another.Our main goal of the A-123 is to foster an effective internal control environment in the Federal government. We accomplish this overarching goal with more targeted goals or milestones, such as: Taking a more in-depth and honest look at the current internal control environment. We cannot improve things if we are not truly honest about where we are now. Having more communication and cooperation between the CFO shop and the program offices. This is a joint effort, since most of the financial transactions are initiated in the program offices. Both the financial and program offices need to be on the same page and working together. Improving corrective action plans. Corrective actions need to be measurable to ensure that the intended purpose is achieved and the corrective actions are on target. Integrating internal control reviews. There are opportunities for agencies to potentially tweak existing reviews to meet several requirements rather than layering one review on top of another.

3. 3 Where are we now? Completing the first year of Appendix A implementation Reviewed assurances as of June 30 to update for new information - correction of existing weaknesses or identification of new weaknesses Final assurance statements published in Performance and Accountability Reports on November 15 We are coming a close on the initial year of implementation of the A-123 Appendix A. The final results and assessments are not in yet, but will be published in the Performance and Accountability Reports on November 15. Agencies are now reviewing the results of their assessments performed on the controls in place as of June 30 to update those results for any new information. Agencies may have implemented and tested corrective actions or identified further deficiencies since the assessment made earlier in the fiscal year.We are coming a close on the initial year of implementation of the A-123 Appendix A. The final results and assessments are not in yet, but will be published in the Performance and Accountability Reports on November 15. Agencies are now reviewing the results of their assessments performed on the controls in place as of June 30 to update those results for any new information. Agencies may have implemented and tested corrective actions or identified further deficiencies since the assessment made earlier in the fiscal year.

4. 4 What are our major challenges? Better integration with program offices - Appendix A requirements still viewed as only a CFO effort Better integration with other internal control reviews to reduce duplication of effort Better assimilation into culture of organization to make the assessment more routine From some preliminary feedback, we have identified a few areas that represent challenges to the successful implementation of the A-123. Unfortunately, some agencies are still trying to overcome the mind-set that the Appendix A of the A-123 only applies to the CFO. As I mentioned earlier, this has to be a joint effort. The program offices are typically the initiators of transactions that ultimately impact the financial statements. Agencies need to understand the process and ensure the proper controls are in place for the transaction flow. Some agencies have also indicated that during fiscal year 2007, they will be focusing on leveraging other internal control reviews to make the assessment more efficient. And lastly, agencies will need to continue to assimilate this process into the other routine processes. This was the first year of implementation and therefore a time-consuming effort. It is expected that in a few years, the process will be imbedded into the culture and not considered a separate effort, but part of the day-to-day routine. From some preliminary feedback, we have identified a few areas that represent challenges to the successful implementation of the A-123. Unfortunately, some agencies are still trying to overcome the mind-set that the Appendix A of the A-123 only applies to the CFO. As I mentioned earlier, this has to be a joint effort. The program offices are typically the initiators of transactions that ultimately impact the financial statements. Agencies need to understand the process and ensure the proper controls are in place for the transaction flow. Some agencies have also indicated that during fiscal year 2007, they will be focusing on leveraging other internal control reviews to make the assessment more efficient. And lastly, agencies will need to continue to assimilate this process into the other routine processes. This was the first year of implementation and therefore a time-consuming effort. It is expected that in a few years, the process will be imbedded into the culture and not considered a separate effort, but part of the day-to-day routine.

5. 5 What did we achieve this year? Re-emphasis on importance of effective internal control Senior management set the priority Expansion of existing, or creating new, oversight committees for internal control Significant progress in assessing key business processes Review and revise documentation of key processes and related internal controls More focus on corrective actions for existing weaknesses Beginnings of streamlining and standardizing processes I think it was, and is, important to re-emphasize the importance of internal control. I am very proud of how the senior management of the departments and agencies stepped up to the plate and communicated to their respective employees that effective internal control is a priority and rests with each individual and not just management. I am also very proud of the hard work that the employees exhibited by reviewing and updating the documentation of the key business processes and internal controls. We also saw an improvement in corrective action plans, which I think can be attributed to this assessment process. Last, but not least, agencies are beginning to think strategically by identifying processes that can be streamlined or standardized across the department or agency. This is a benefit that we had anticipated in year 2 or beyond in the implementation of Appendix A. It appears we are well on our way. I think it was, and is, important to re-emphasize the importance of internal control. I am very proud of how the senior management of the departments and agencies stepped up to the plate and communicated to their respective employees that effective internal control is a priority and rests with each individual and not just management. I am also very proud of the hard work that the employees exhibited by reviewing and updating the documentation of the key business processes and internal controls. We also saw an improvement in corrective action plans, which I think can be attributed to this assessment process. Last, but not least, agencies are beginning to think strategically by identifying processes that can be streamlined or standardized across the department or agency. This is a benefit that we had anticipated in year 2 or beyond in the implementation of Appendix A. It appears we are well on our way.