FINANCIAL INTEGRITY AOC REPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G00186R000700790003-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: June 4, 2010
• Sequence Number: 3
• Publication Date: October 23, 1985
• Content Type: MEMO

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EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20103
October 23, 1985
Executive Registry
This year's reports to the President and congress required by the Financial
Integrity Act should reflect the tremendous progress that has been made under
IZeform '88 in upgrading internal controls and modernizing financial systems.
We have made a good start in implementing the Financial Integrity Act and we
must not let up now. This year's report should stress three basic elements:
(1) the extent to which you have incorporated the Act's requirements into
your regular management system, (2) any material weaknesses found in your
reviews, and (3) your success in correcting those weaknesses and plans for
future action.
The guidance furnished on September 26, 1983, and November 16, 1984, is still
valid, and should be used in conjunction with the attachments to this memo to
prepare the 1985 reports required by the Act. Attachment 1 covers
preparation of the internal control statement and Attachment 2 covers
preparation of the report on accounting systems.
The Financial Integrity Act challenges us to show how well we can control and
manage Government programs. Your continued attention and support for the
work required by the Act will demonstrate that we can meet that challenge.
Along with other initiatives under the President's Management Improvement
Program, it will result in the kind of modern, business-like management of
Government that the taxpayers deserve.
If you Or Your staff have questions about this guidance or the content of
this year's reports, please contact our Financial Integrity Task Force at
395-6823 or 395-3993.
Attachments
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Attachment 1
REPORTING ON INTERVAL aQJ1 LS
UNDER THE FINANCIAL IN`r RI Y ACT
The year-end statement on internal control should describe the current status of
agency systems and plans for improving them. The most important elements of the
evaluation, improvement, and reporting process are:
o Incorporating internal controls into the agency's basic management
structure. The experience gained from three years of operation under the
Act, together with the advice received from OMB, the agency's Inspector
General, and the General Accounting Office should be considered in
updating and describing this process.
o Identifying and reporting on material control weaknesses. Candor in
reporting these weaknesses to agency management and in reporting them to
the President and the Congress is of utmost importance. While there
continues to be some uncertainty as to what constitutes a material
weakness, the definitions developed by individual agencies have been
helpful in defining it in terms appropriate for the agency's operations.
In addition, the House Committee on Government Operations has provided some
sound advice on this matter. It suggested, and we agree, that agency
officials should include as material weaknesses those matters that could:
- Impair fulfillment of the agency's mission;
- Deprive the public of needed government services;
- Violate statutory or regulatory requirements; or
- Result in a conflict of interest.
o Tracking and correcting the control system weaknesses. This is the most
important single aspect of the internal control process. It includes
periodic tracking and high level management review to ensure that timely
corrective action is taken. Thereafter, appropriate management review is
needed to assess the actions taken to determine whether the weaknesses have
been corrected.
In preparing the internal control statement, each agency should use the sample
statement furnished in OMB's Internal Control Guidelines and in the memorandum on
this subject dated September 26, 1983-to the extent appropriate for its situation.
Most agencies have followed this guidance in preparing their statements on the
first two years' operations. Agency officials also may find it useful to examine
the statements issued by others to determine how certain problem issues were
reported. Copies of the internal control statements are on file in OMB for
examination by agency officials.
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Attachment A to the internal control statement is to contain a detailed
description of the agency's evaluation process and plans to incorporate it into
basic management operations. This information has proven useful in explaining an
agency's process and accomplishments in implementing the internal control
requirements of the Act. As such, it should continue to be included as part of each
internal control statement. For the 1985 statement, however, the attachment should
also include a sunmary of accomplishments during the year on each of the following
items:
o Evaluation of payment systems, accomplished in accordance with CPS
Memorandum 85-7, dated November 7, 1984;
o Evaluation of information technology systems (sensitive applications and ADP
facilities) to meet the requirements of Circulars A-71, A-123, and A-127;
and
o The agency's program for review of actions taken to determine whether the
material control system weaknesses have been corrected as intended.
If programs to accomplish each of these tasks have not been established, then
describe the 1986 plan to do so.
Reporting on material weaknesses, submission of plans and schedules for
oorrectile actions, and reporting on the status of actions to correct the
weaknesses reported in prior years are to be accomplished using the instructions
previously issued.
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EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. Z
AU G 26 1986
Honorable Charles A. Bowsher
Comptroller General of the
United States
General Accounting Office
Washington, D.C. 20548
Dear Chuck:
We are concerned by what appears to be a recurrent thane in the draft
reports issued by your division directors concerning the agencies'
implementation of the Federal Managers Financial Integrity Act. The theme
is that the agencies' internal control evaluation and inprorvement process
has not accomplished enough for the agency heads to have an adequate basis
to report that their system of internal control, for the agency as a whole,
provides reasonable assurance that the objectives of internal control are
being achieved within the limits described in their statements.
Many of the reports suggest that (1) unless most of the agencies' control
systems are evaluated and tested, and (2) until the reaxu~ended improvements
to the evaluation process are made and the material weaknesses in the
control system are corrected, then the agency head does not have an adequate
basis to provide a reasonable assurance statement. Such an approach
suggests that GAO is looking for a higher level of assurance than the
reasonable assurance requirement provided for in the Act. If we look for
absolute assurance it would be impossible for any organization, government
or business, to most such a test.
In the reports issued by the National Security and International Affairs
Division the agencies are advised that:
"In determining whether an adequate basis exists for reporting
that systems of internal accounting and administrative controls
meet the objectives of the act, we believe the agency head must
consider the (1) significance of the weaknesses disclosed, (2) status
of corrective actions, (3) comprehensiveness and quality of the
management control evaluation work performed, and (4) extent to which
accounting systems conform to the Comptroller General's principles,
standards, and related requirements.'
We agree with this summary as far as it goes, but are concerned with the
limitations that seem to be included in item (3), since many of the reports
equate this only with the agencies' internal control evaluation process. In
an exchange of correspondence with GAO last winter, copy enclosed, we
advised that an agency head is expected to consider more than the results of
the internal control evaluation process. Wa believe that the sun of all
information available to management (including the assurance letters
received from managers, all known internal control weaknesses, and the
effect of IG reports, GAO reports and other work done within the agency) is
to be considered in making the reasonable assurance determination for use in
the year-end internal control statement.
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Attachment 2
REPORTING ON AMOUNTING SYSTEMS
UNDER THE FINANCIAL INTEGRTTS( ACT
The guidance furnished during FY 1985 about the evaluation, improvement, and
reporting on financial management/acoounting systems provides the foundation for
reporting under Section 4 of the Financial Integrity Act. This guidance includes:
(1) OMB Circular A-127, "Financial Management Systems," dated December 19, 1984;
(2) Memorandum 85-10, "Financial Management and Accounting Objectives," dated
March 15, 1985; and (3) Memorandum 85-16, "Guidelines for Evaluating Financial
Management,/Accounting Systems," dated May 20, 1985.
The requirements of these documents are briefly summarized as follows:
o Agencies are to establish and maintain a single, integrated financial
management system that meets the objectives set forth in Circular A-127.
o The objectives incorporate the requirements of law and appropriate
guidance of GAO, Treasury, and OMB.
o An annual review shall be performed of each financial
management/accounting system and subsystem. Limited reviews are to be
conducted annually and detailed evaluations are to be conducted at least
once every three years. These reviews/evaluations should be made using
OMB's Financial Management/Accounting Guidelines.
o Results of the reviews are to be used to develop two annual reports. A
five-year financial system plan to accomplish the policies and objectives
of the Circular is to be developed and included with the annual budget and
management submission to Cam. Also, an annual report on accounting systems
as required by Section 4 of the Financial Integrity Act is to be submitted
to the President and Congress.
o Accounting systems that comply with the provisions of the Circular are to
be considered as meeting the requirements of the Financial Integrity Act.
Circular A-127 provides, in accordance with Section 4 of the Financial Integrity
Act, that:
o The head of each agency shall report to the President and the Congress on
whether the agency's accounting systems conform with the principles and
standards developed by the Comptroller General and implemented through
Circular A-127,
o The report shall reflect the agency head's judgment of conformance based
on the annual review carried out in accordance with Chapter V of the
Financial Management/Accounting Guidelines, and
o The report shall be completed and submitted by December 31 of each year
for the fiscal year ending September 30.
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