CDFM Mod 1 Lesson 4 (2022/2023) Already Passed

CDFM Mod 1 Lesson 4 (2022/2023) Already Passed What is the name of the Department's Internal control effort? Managers' Internal Control Program The purposes of the Federal Managers' Financial Integrity Act of 1982 are to prevent waste or misuse of agency funds or property and to assure the accountability of what? Assets What do internal controls reasonably ensure? - Programs achieve intended results - Resources are used efficiently - Programs/resources are protected from waste, fraud, and mismanagement - Laws and regulations are followed - Financial reporting is reliable and accurate What agency issues "Standards for Internal control in the Federal Government"? Government Accountability Office (GAO) Segregation of duties is a part of which internal control standard? Control activities The Integrity Act report must include agency plans to correct what type of weakness? Material weakness Who decides whether a weakness is material enough to warrant reporting as a "material weakness" to the next higher level? It is a management judgment What should be the last milestone of the corrective action plan for each material wekaness? Correction Validation The DoD component head's Statement of Assurance must take one of how many forms? Three How many standards are there in the GAO Standards of Internal Control? Five For what program is the full scope of management responsibility defined in DoD Instruction 5010.40? DoD's Managers' Internal Control Program When a DoD component head provides a Statement of Assurance that the component's controls are in place and achieving their intended objectives, is this a statement or absolute assurance or reasonable assurance? Reasonable assurance What is the term for the probable or potential adverse effects from inadequate internal control that may result in the loss of Government resources or cause an agency to fail to accomplish significant mission objectives through fraud, waste, or mismanagement? Risk What kind of a weakness significantly impairs the fulfillment of a DoD component's mission? Material Define 'Internal Control.' A system of guidance, instructions, regulations, procedures, rules, or other organization instructions intended to determine the methods to be employed to carry out mission or operational actions or objectives, and ensure that programs achieve intended results. This supports the effectiveness and integrity of every step of a process. (Illustrated: Separate functions, don't give too much oversight, authority to any one person) What documents are involved in Internal Control Guidance? (1) The Federal Manager's Financial Integrity Act (FMFIA) of 1982 (2) GAO Standards for Internal Controls (3) OMB Circular A-123 (4) DoDI 5010.40 DoD Managers' Internal Control Program Describe the following Internal Control Guidance: Federal Manager's Financial Integrity Act (1982) Prevent waste/misuse of agency funds and property Assure accountability of assets What are Federal Managers' Financial Integrity Act Requirements? (1) GAO to establish standards for internal control for federal government (2) OMB to establish guidelines for agencies to do self-assessment of internal control (3) Executive Agencies: - Evaluate internal accounting and administrative costs - Identify, track, and correct material weaknesses Annually report self-assessment findings (4) Agency annual reports to be made public The Federal Managers' Financial Integrity Act of 1982 (FMFIA) amended the Accounting and Auditing Act of 1950 to require ongoing evaluations and reports of the adequacy of the systems of internal accounting and administrative control of each Executive agency. Specifically, each Executive agency shall provide what reasonable assurances? Each Executive agency shall provide reasonable assurances that: - obligations and costs are in compliance with applicable law; - funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or misappropriation; and - revenues and expenditures applicable to agency operations are properly recorded and accounted for to permit the preparation of accounts and reliable financial and statistical reports and to maintain accountability over the assets. Section 2 of the Federal Managers' Financial Integrity Act of 1982 requires that annually the head of each Executive agency submit to the President and Congress what two documents? (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. What are the Requirements of the Director of the Office of Management and Budget in the Federal Managers' Financial Integrity Act of 1982? Establish guidelines for Executive agencies to apply in evaluating their systems of internal accounting and administrative control. What are the Requirements of the Head of Each Agency with regard to the Federal Managers' Financial Integrity Act of 1982? Evaluate internal accounting and administrative control annually and submit report to Congress and the President. The reports, excluding classified information, are to be available to the public. FMFIA also requires that material weaknesses be identified, tracked, and corrected. What does the OMB Circular A-123 Internal Control Responsibility entail? - Develop and implement internal control - Assess adequacy of internal control - Identify needed improvements - Take corresponding corrective action - Report annually on internal control Internal Controls Objectives provide reasonable assurances of what? Provide reasonable assurances that: - Programs achieve intended results. - Resources are used efficiently. - Programs/resources are protected from waste, fraud, and mismanagement. - Laws and regulations are followed. - Financial reporting is reliable and accurate. What are the GAO Standards for Internal Control? Think CRIME C - Control Environment (Tone at the Top) R - Risk Assessment (SWOT Analysis) I - Information and Communications M - Monitoring E - Existing Control Activities (Policies, procedures, etc.) General internal control deficiencies are described in what two ways? (1) Reportable Condition (2) Material Weakness Define 'Reportable Condition.' A control deficiency or combination of control deficiencies that in management's judgement represent significant deficiencies in the design or operation of internal control that could adversely affect the organization's ability to meet its internal control objectives. Reportable conditions will be internally tracked and monitored within the agency. Define 'Material Weakness.' A reportable condition that the agency head determines to be significant enough to be reported outside the agency shall be considered a material weakness and included in the annual FMFIA assurance statement and reported in the agency's annual Performance and Accountability Report (PAR). How may Internal Control Deficiencies for Financial reporting be categorized? As a - Control Deficiency (least serious) - Reportable Condition - Material Weakness (most serious) Define a 'control deficiency.' It exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A design deficiency exists when a control necessary to meet the control objective is missing is missing or an existing control is not properly designed, so that even if the control operates as designated the control objective is not always met. An operation deficiency exists when a properly designed control does not operate as designed or when the person performing the control is not qualified or properly skilled to perform the control effectively. Define a 'reportable condition.' It is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements, or other significant financial reports, that is more than inconsequential will not be prevented or detected. *The GAO Government Auditing Standards refers to this as a "significant deficiency." Define a 'material weakness.' In an internal control, it is a reportable condition, or combination of reportable conditions, that results in more than a remote likelihood that a material misstatement of the financial statements, or other significant financial reports, will not be prevented or detected. Material weaknesses in internal control over financial reporting shall be included in the animal FMFIA report, but separately identified. *The DoD reported 12 material weaknesses What are the general criteria of Material Weaknesses? - Internal controls do not provide reasonable assurance that the objectives of the Internal Control Program are being met. - Is or should be of interest to the next higher management level. Whether a weakness is material enough to warrant reporting to a higher level is a management judgement. DoD material weaknesses are considered at what four levels? (1) DoD Level (DoD Statement of Assurance) (2) Component Level (3) Major Command or Field Activity Level (4) Installation or Activity Level *Roll-Up: signed by head of every org/agency on the way up Name some considerations that contribute to management decisions that a material weakness exists. - Actual or potential loss of resources - Sensitivity of the resources involved - Current or probably media interest Internal Control Reporting. What do Annual Statements of Assurance cover? - General assurance -- controls are achieving results - Separate assurance for Financial Reporting - Material Weaknesses in each DoD Components are required to submit their Annual Statement of Assurance to OSD by (1)_______________ each year. The DoD then submits its Annual Statement of Assurance as part of its Annual Financial Report to OMB by (2)_______________. (1) 1 October (2) 15 November The statements of reasonable assurance represent the agency head's informed judgement as to the overall adequacy and effectiveness of internal control within the agency. The statement must take one of what three forms? (1) Unqualified Statement of Assurance (no material weaknesses reported) OR (2) Qualified Statement of Assurance, with the exceptions explicitly noted (one or more material weaknesses reported) OR (3) Statement of No Assurance (no processes in place or pervasive meaterial weaknesses) What are DoD Instruction 5010.40 Manager's Internal Control Procedures? (1) Establish Internal Control Process (2) Segment into assessable units (An assessable unit is any organizational, functional, programmatic, or other applicable subdivision, capable of being evaluated by internal control assessment procedures. Each DoD component shall establish and maintain an inventory of its assessable units). (3) Evaluate effectiveness of internal controls (4) Correct material weaknesses (5) Report on Internal Control Program The annual Statement of Assurance submitted to the Secretary of Defense should include what four elements? (1) Cover memorandum (2) Explicit Level of Assurance - an unqualified statement of assurance; - a qualified statement of assurance; or - a negative statement (3) Description of Evaluation (4) Uncorrected Material Weaknesses (The specific plans and schedules shall include the actions that will correct a weakness) (5) Corrected Material Weaknesses/Validation Milestone (Each corrected material weakness will include, as the last milestone, a validation milestone that evaluates and certifies the effectiveness of the corrective action). What are the Benefits of Internal Control? (1) Prevent and Detect Errors (2) Avoid Fraud (3) Improve Business Practices (4) Safeguard Assets (5) Prepare for Audits (6) Comply wiht Law Define 'Assessible Unit.' Any organizational, functional, programmatic, or other applicable subdivision, capable of being evaluated by management control assessment procedures. An assessable unit should be a subdivision of an organization that ensures a reasonable level of management control to allow for adequate control analysis. Assessable units usually have specific internal controls that are applicable to their responsibilities, as well as other guidance that has broad organizational application. Occasionally, some organizational units (field activities or offices) will have fundamentally the same internal control structure but will be considered individual assessable units because of geographic separation. Assessable units are responsible for conducting internal control evaluations. Risk The probable or potentially adverse effects from inadequate internal controls that may result in the loss of Government resources or cause an agency to fail to accomplish significant mission objectives through fraud, error, or mismanagement. Assessable Unit Managers This includes top-level managers, down through operational managers, of all programs and activities in which funds, property, and other assets must be safeguarded against fraud, waste, or mismanagement and in which operations and resources must be managed efficiently and effectively. While all managers are expected to comply with annual internal control evaluation requirements, the DoD components may not require full participation of all managers to adequaely develop conclusions regarding management conrols or to adequately produce year-end reports. Control Objective A specific aim, goal