Management Internal Control Program FINANCE AND COMPTROLLER SCHOOL

Management Internal Control Program FINANCE AND COMPTROLLER SCHOOL

Terminal Learning Objective ACTION Determine the Principles of the Managers’ Control Program. CONDITION STANDARD 10/7/2020 FINANCE & COMPTROLLER SCHOOL 2

Terminal Learning Objective ACTION CONDITION - Given a summary sheet containing AR 11 -2, and slides STANDARD 10/7/2020 FINANCE & COMPTROLLER SCHOOL 3

Terminal Learning Objective ACTION CONDITION STANDARD - With 80% accuracy: Understand the principles of the management control program - Validate regulatory and legislative background information 10/7/2020 - Determine responsibilities within DA and FINANCE & COMPTROLLER SCHOOL implementation. 4

FINANCE AND COMPTROLLER SCHOOL Management Controls Show BP Coffee Spill Video 10/7/2020 FINANCE & COMPTROLLER SCHOOL 5

FINANCE AND COMPTROLLER SCHOOL What’s an Internal Control? A process affected by a organization, designed to provide reasonable assurance in the effectiveness of: • Efficient and effective operations • reliable reporting of information about its operations • Compliance with applicable laws and regulations 10/7/2020 FINANCE & COMPTROLLER SCHOOL 6

FINANCE AND COMPTROLLER SCHOOL Laws & Directives Congress OMB • Accounting and Auditing Act of 1950 • Federal Manager's Financial Integrity Act of 1982 • Office of Management and Budget (OMB) Circular A-123 • Comptroller General Standards for Internal Control (GAO “Green Book”) Army • AR 11 -2, Managers’ Internal Control Program Regulation 10/7/2020 FINANCE & COMPTROLLER SCHOOL 7

FINANCE AND COMPTROLLER SCHOOL Federal Managers Financial Integrity Act (FMFIA) Statutory basis for management’s responsibility of internal accounting and administrative controls FMFIA Objectives: • Obligations in compliance with laws and regulations • Safeguarding of funds/assets from misappropriation • Reliability of financial reporting 10/7/2020 FINANCE & COMPTROLLER SCHOOL 8

FINANCE AND COMPTROLLER SCHOOL OMB Circular A-123 Implementing vehicle for integrity act. Requires agencies use enterprise risk management (ERM) and internal controls functions GAO “Green Book” provides framework to improve Operations, Reporting, & Compliance 10/7/2020 FINANCE & COMPTROLLER SCHOOL 9

FINANCE AND COMPTROLLER SCHOOL HQDA Functional Proponents Identify "KEY" management controls. Develop/approve evaluation checklist/method & include in governing Army regulations. Compose Annual Statement of Assurance 10/7/2020 FINANCE & COMPTROLLER SCHOOL 10

FINANCE AND COMPTROLLER SCHOOL Army Units Maintain effective internal controls (IC) Evaluate IC periodically Submit annual assessment Track and correct material weaknesses 10/7/2020 FINANCE & COMPTROLLER SCHOOL 11

FINANCE AND COMPTROLLER SCHOOL Reasonable Assurance A satisfactory level of confidence given the consideration of costs, benefits, and risk. For most resources, the Army cannot afford or attain 100% assurance. The determination of reasonable assurance is a day to day judgment. Risk RISK Co ro nt Risk ls Residual Risk (Reasonable Assurance) 10/7/2020 FINANCIAL MANAGEMENT SCHOOL 12

FINANCE AND COMPTROLLER SCHOOL General Categories Administrative controls: • Ensure adherence to laws, regulations, and policies. Accounting controls: • Safeguards financial and other assets from unauthorized use. • Ensures reports and records are reliable and accurate. 10/7/2020 FINANCE & COMPTROLLER SCHOOL 13

FINANCE AND COMPTROLLER SCHOOL Comptroller General Standard (Enterprise Risk Management/Internal Control Model) OMB Objectives Control Environment Risk Assessment Information & Communication Control Activities Ar my Le ve ls Monitoring 10/7/2020 FINANCE & COMPTROLLER SCHOOL 14

FINANCE AND COMPTROLLER SCHOOL Control Environment Command emphasis on business practices and ethical values Defined Structure and assign responsibility Commitment to recruit, develop and retain competent people Enforces Accountability 10/7/2020 FINANCE & COMPTROLLER SCHOOL 15

FINANCE AND COMPTROLLER SCHOOL Risk Assessment Identifies Internal/External Vulnerabilities Analyzes & Assesses Risks Implement Risk Mitigation Factors Updates risks as significant changes occur 10/7/2020 FINANCE & COMPTROLLER SCHOOL 16

FINANCE AND COMPTROLLER SCHOOL Control Activities Unique to Each Agency Design & Develop Controls related to objectives Implemented through Policies and Procedures 10/7/2020 FINANCE & COMPTROLLER SCHOOL 17

FINANCE AND COMPTROLLER SCHOOL Types of Control Activities Detective • Find Errors After they have occurred • Ex. Petty cash counts, physical inventories, peer reviews Preventative • Stop errors before they occur • Ex. Separation of duties, drug tests, data backup 10/7/2020 FINANCE & COMPTROLLER SCHOOL 18

FINANCE AND COMPTROLLER SCHOOL Types of Control Activities (Cont. ) Detective Preventative Command Reviews of Performance Segregation of Duties Reviews at functional level Access Restrictions Management of Human Capital Transaction Documentation Performance Indicators Physical Security Information Systems Policy & Procedures Application Controls 10/7/2020 FINANCE & COMPTROLLER SCHOOL 19

FINANCE AND COMPTROLLER SCHOOL Information & Communication Uses Relevant Information Communicates Internally Communicates Externally 10/7/2020 FINANCE & COMPTROLLER SCHOOL 20

FINANCE AND COMPTROLLER SCHOOL Monitoring Conduct ongoing and/or separate evaluations Evaluation of results and communicates deficiencies Ensures corrective actions are implemented as needed 10/7/2020 FINANCE & COMPTROLLER SCHOOL 21

FINANCE AND COMPTROLLER SCHOOL Responsibilities Secretary of the Army ASA (FM&C) • DASA (FO) • Director of Management, Control, and Evaluation HQDA Functional Proponents Auditor General/Inspector General 10/7/2020 FINANCE & COMPTROLLER SCHOOL 22

FINANCE AND COMPTROLLER SCHOOL Responsibilities (Cont. ) Senior Management Council Reporting Organizations Assessable Unit Managers All Commanders/Managers 10/7/2020 FINANCE & COMPTROLLER SCHOOL 23

FINANCE AND COMPTROLLER SCHOOL MICP Implementation Policy Evaluation Reporting 10/7/2020 FINANCE & COMPTROLLER SCHOOL 24

FINANCE AND COMPTROLLER SCHOOL Policy Reporting organizations are segmented into assessable units • General Officer, SES, or O-6 led only Managers must apply GAO “Green Book” standards for ERM/MICP 10/7/2020 FINANCE & COMPTROLLER SCHOOL 25

FINANCE AND COMPTROLLER SCHOOL Evaluation Conducted at all levels Five-year plan Covers all functional areas Identifies regulations, references, checklists Uses existing evaluations (such as Command Supply Discipline Program)– avoids special evaluations 10/7/2020 FINANCE & COMPTROLLER SCHOOL 26

FINANCE AND COMPTROLLER SCHOOL Reporting Annual statement Assessable unit managers/commanders Provides overall assessment of management control and weaknesses Forms basis for Sec. Army’s annual statement 10/7/2020 FINANCE & COMPTROLLER SCHOOL 27

FINANCE AND COMPTROLLER SCHOOL Parting Thoughts Internal control is a process. • - It is a means to an end, not an end in itself. Internal control is affected by people. • -Not just policy and forms—people at every level • “Informal” standards & procedures evolve Internal control provide redundancy in several overlapping categories. Internal control can provide only reasonable assurance 10/7/2020 FINANCE & COMPTROLLER SCHOOL 28

FINANCIAL MANAGEMENT SCHOOL Check on Learning 10/7/2020 FINANCE & COMPTROLLER SCHOOL 29

FINANCE & COMPTROLLER SCHOOL Check on Learning (Cont. ) Q. What are the 3 key parts of Internal Control Implementation? Q. Is reasonable assurance in the MICP 100% attainable? Q. How many Management Control Standards are there? True / False. The risk assessment MICP standard emphasizes the quality of performance over time. Q. Detective controls are generally superior to Preventative controls. 10/7/2020 FINANCE & COMPTROLLER SCHOOL 30

FINANCE AND COMPTROLLER SCHOOL Questions 10/7/2020 FINANCE & COMPTROLLER SCHOOL 31

Terminal Learning Objective ACTION CONDITION STANDARD Determine the Principles of the Managers’ Control Program. - Given a summary sheet containing AR 11 -2, and slides - With 80% accuracy: Understand the principles of the management control program - Validate regulatory and legislative background information - Determine responsibilities within DA and implementation.