OMB seeks to improve value of internal controls reporting

The Office of Management and Budget is considering how to realign internal controls for financial reporting so it is more relevant and valuable to agencies. On April 13, OMB will conduct the first in a series of forums on integrating internal controls to help agencies expand the effectiveness and efficiency of their organizations, said Danny Werfel, OMB’s acting controller.

Agencies must report to OMB on the effectiveness of their internal controls not only for financial reporting. Some of those internal controls overlap into information security and procurement, he said.

Chief financial officers “are overwhelmed by compliance. The internal controls are numerous, complex and aren’t right-sized for added value,” Werfel said at the Federal Financial Management Conference March 11. CFOs often have the responsibility to fix material weaknesses but not the authority because the problem may reside in a program in one of the department’s operating agencies.

“We need to relook at financial reporting requirements and realign them to drive more value,” Werfel said.

OMB has asked agencies to evaluate internal controls not only for financial reporting, which OMB requires under Circular A-123, but where they overlap for acquisition and information security and where they can have greatest impact on mission effectiveness. OMB wants agencies to take an enterprisewide view of internal controls under A-123 and a broader view of risk. CFOs could find risk in procurement or information security.

“When determining where to spend resources on internal controls, we’re looking across multiple areas, including operational, not just if the balance sheet is reported accurately,” Werfel said. “It is also important that our acquisition controls and IT security controls are in place, and operational, that we’re delivering services or benefits, like equipment to the war fighter.”

OMB also wants agencies to take an integrated approach to internal controls. The CFO, chief information officer, chief acquisition officer and chief human capital officer each have internal controls to oversee.

“When you stovepipe it, you’ll have each of these offices putting in tiger teams, infrastructure and testing and it’s less efficient,” Werfel said.

CFOs have made great strides in providing clean audited financial statements and reducing material weaknesses through more oversight of internal controls. But compliance absorbs most of CFOs’ time and resources. They want to move beyond compliance and help define business risk and data strategy for decision-making, he said.

It takes a heroic effort for agencies to produce their Performance and Accountability Report and financial statement in 45 days after the end of the fiscal year, Werfel said.

“There is not a strong feeling that they can push on, unless you feel that the 11:55 p.m. effort is going to get easier and more efficient,” he said. “You would think that the resources needed would decline, but that hasn’t happened,” he added.

Agencies can enhance their organizational capacity by being more efficient and effective so CFOs can move beyond compliance. Agencies need to become more standard in how they do business, such as through the Financial Management Line of Business, which focuses on common systems, business processes and accounting standards across government. CFOs also should work more with other agency CXOs to build more support throughout the agency. And agencies should integrate financial management throughout the organization.

OMB last month also asked the Federal Accounting Standards Advisory Board, of which it is a member, to take on the project to evaluate and integrate the standards for which agencies must report. The board tends to add to the standards that agencies must account for instead of integrating or consolidating or reducing them, Werfel said.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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