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As a June 30 Office of Management and Budget deadline approaches for agencies to issue assurances of their internal controls over financial reporting, experts have different ideas on how to secure immediate and long-term compliance.

At a Tuesday breakfast for members of the federal financial community, government and industry panelists made various recommendations for meeting the deadline, which is set in OMB's Circular A-123. These ranged from implementing information technology systems to winning buy-in from top management.

Fiscal 2006 is the first year in which agencies covered by the 1990 Chief Financial Officers Act must provide assurances that the internal processes that feed into financial reports are accurate and effective. Agency heads will be required to note any significant or "material" weaknesses in those controls and identify corrective actions.

The Circular A-123 rules are widely compared to the private sector's 2002 Sarbanes-Oxley Act accounting regulations, instituted in response to the WorldCom and Enron scandals. That law requires leaders of publicly traded companies to take responsibility for corporate financial statements. With a head start in complying with enhanced accounting rules, industry representatives offered advice to government managers.

"Documentation is the backbone, and the biggest pain point" in compliance, said McNamara Curtis, president and chief executive officer of Arlington, Va.-based Pearson Government Solutions, a large IT and management contractor that has instituted its own Sarbanes-Oxley compliance systems over the past several years.

Curtis said automatic updates to documentation are the key to avoiding overwhelming paperwork, noting that his company's latest compliance papers stack up to four and a half feet. He also said segregation of duties is important to the integrity of the process, and urged agencies to resist modifying off-the-shelf accounting software to match their business processes. Much better, Curtis said, is to reshape accounting processes to fit the strictures of the software, to take advantage of the compliance built into the solution.

Bill McCabe, acting CFO of the Education Department and formerly a senior manager with global accounting giant KPMG, pointed out a matrix the agency used to highlight key processes for attention on A-123 compliance. On one axis, the matrix evaluates 13 processes on their inherent risk. The second axis identifies the extent of potential damage resulting from a bad outcome through that procedure.

Outliers for risk or negative outcomes require extra attention, McCabe said. He spoke in a personal capacity rather than as a departmental representative.

While the matrix does not produce concrete data on the reliability of internal controls, McCabe emphasized that the OMB circular requires a standard of "reasonable assurance" -- not the full audit accountability to which inspectors general and financial management contractors are accustomed. Molly Dawson, an Education Department audit manager, warned that consultants often are happy to take agencies beyond the point they need to reach, incurring additional fees in the process.

Dawson and McCabe also highlighted the importance of upper management support to achieve compliance, noting that Education Secretary Margaret Spellings has sat in on A-123 meetings at least once per month.

To Anna Gowans Miller, director of research with the Association of Government Accountants, going beyond the minimum compliance requirements can be a good thing, especially when assisted by the right technology solutions.

"You throw a lot of bodies at the problem, and after the first year you find you can't sustain it without automating," Miller said of the process. The right software not only streamlines compliance, but can provide a "dashboard" to alert management when early signs of trouble arise, she said.

In an audience discussion, one participant asked whether agencies should realistically expect to see cost savings from their compliance systems. Government officials on the panel pointed out some of the benefits of improved internal controls, including reduced risk of audit setbacks and unexpected financial results.

But an industry participant was less optimistic. Based on initial Sarbanes-Oxley compliance costs, his company is budgeting for a threefold increase in auditing costs for at least a few more years, he said.

COMMENTS

• This entire operation is a bunch of blind leading the blind! There is no practical reason for the government to be on an accrual accounting system. The internal controls they are discussing are to assure that accrual accounting entries are auditable. The information is totally useless to anyone in government with the responsibility to generate these worthless numbers and document them. In the environmental area they have environmental engineers determining accounting policy and no one in the financial community qualified to offer direction to anyone. All the financial community does is to try to pass the responsibility on to the functional areas. Even the DoD IG does not think the financial community is responsible for anything and only audits the functional area. We are spending hundreds of millions of dollars to implement this worthless system and in the end there will be no savings but a tremendous outlay of taxpayer funds to achieve nothing useful to the operators. This information will not be used for decision-making or else the decisions will lead to more costly results. This whole thing is ridiculous and is being implemented in a culture that operates on cash and not accrual. Private sector businesses do not use this data for decision-making and even the accounting objective is to assure that the financial statements are not oriented to report to any particular group. That means you need to make sure that the financial statements are not useful to anyone in particular! Sarbanes-Oxley is driving companies out of the country or into being privately held rather than publicly held. It is accelerating the move of our economic base overseas. Sarbanes is a union man and Oxley is an incumbent using private corporate air planes to travel at significantly reduced charter rates so that challengers to him cannot afford to run against him in a fair and equitable manner. Vote these incumbents out of office and repeal this stupid law! Also, get rid of accrual accounting for the federal government before the cost to implement it exceeds anything the American people consider of value. Taxpayer Posted May 10, 2006 7:44 AM