October ASMC Monthly Luncheon

1
October ASMC Monthly Luncheon
ArmyManagers Internal Control program

• Holiday Inn Eisenhower Avenue,
• Alexandria, VA
• October 17, 2007

Presented by Mr. John J. Argodale Deputy
Assistant Secretary of the Army (Financial
Operations)
2
Army Managers Internal Control program

• Federal Managers Financial Integrity Act (FMFIA)
  of 1982 Establishes specific requirements with
  regard to management controls. The agency head
  must establish controls that reasonably ensure
  that (i) obligations and costs comply with
  applicable law, (ii) assets are safeguarded
  against waste, loss, unauthorized use or
  misappropriation, and (iii) revenues and
  expenditures are properly recorded and accounted
  for. The Act encompasses program, operational,
  and administrative areas as well as accounting
  and financial management.
• OMB Circular A-123 Defines managements
  responsibility for internal control in Federal
  agencies. A re-examination of the existing
  internal control requirements for Federal
  agencies was initiated in light of the new
  internal control requirements for publicly-traded
  companies contained in the Sarbanes-Oxley Act of
  2002. Circular A-123 and the statute it
  implements, the FMFIA, are at the center of the
  existing Federal requirements to improve internal
  controls.
• OMB Circular A-123 Appendix A The circular
  provides updated internal control standards and
  new specific requirements for conducting
  managements assessment of the effectiveness of
  internal control over financial reporting (ICOFR)

3
Managements Responsibility

• Management is responsible for establishing and
  maintaining internal control to achieve the
  objectives of effective and efficient operations,
  reliable financial reporting, and compliance with
  applicable laws and regulations.
• Internal control, in the broadest sense,
  includes the plan of organization, methods and
  procedures adopted by management to meet its
  goals.
• Management is responsible for developing and
  maintaining internal control activities that
  comply with the following standards to meet the
  objectives
• Control Environment
• Risk Assessment
• Control Activities
• Information and Communications, and
• Monitoring

4
Managements Responsibility Continued

• Management should identify internal and external
  risks that may prevent the organization from
  meeting its objectives.
• When identifying risks, management should take
  into account relevant interactions within the
  organization as well as with outside
  organizations
• Identified risks should be analyzed for their
  potential effect or impact on the agency

4
5
Army Managers Internal Control program
Over All Qualified Qualified Qualified Qualified Qualified
ICOFR
No Assurance No Assurance
6
Key Risk Definitions

• Risk The uncertainty of an event occurring that
  could have an impact on the achievement of
  objectives.
• Risk assessment A systemic process for assessing
  and integrating professional judgments about
  probable adverse conditions and/or events.
• Risk management The culture, processes and
  structures that are directed towards the
  effective management of potential opportunities
  and adverse effects.

Risk in itself is not bad risk is essential to
progress, and failure is often a key part of
learning. But we must learn to balance the
possible negative consequences of risk against
the potential benefits of its associated
opportunity. Van Scoy, Roger L. Software
Development Risk Opportunity, Not Problem.
Software Engineering Institute, CMU/SEI-92-TR-30,
ADA 258743, September 1992
7
Army Risk Factors

• Fraud, waste, abuse, or mismanagement of
  government resources
• Effect on combat readiness or program
  accomplishment
• Illegal acts
• Political sensitivity or media interest
• Effect on safety, health, security or morale
• Systemic weaknessesmight result in recurring
  problems
• Minor deficiencies that become significant in the
  aggregate
• Previously identified problems not being corrected

8
The Value of Risk-Based Planning

• Yields disciplined analytical approach to
  evaluation
• Highlights potential risks in the organization
  that might otherwise be unknown
• Fosters dedicated audit coverage to high-risk
  areas
• Allocates resources where pay-back is greatest
• Provides a tool for management to gauge orassess
  enterprise risk

9
Money as a Strategic Weapon

• Tactical Level
• a potent arm in the Commanders arsenal much
  like a rifle or an artillery round is to a
  Soldier in the kinetic fight.
• COL Thomas Horlander, MNCI CJ8
• Strategic Level
• An enabler that develops capabilities for an
  adaptive Army in an environment of persistent
  conflict

10
Army CFO Priorities

• Cost of the Army
• Depreciation measures aging equipment in an Army
  increasingly reliant on technology and equipment
• Controls
• Defense Travel System (DTS)
• Wide Area Work Flow (WAWF)
• Funds Control Module (FCM)
• Temporary Change of Station (TCS)

11
Adopting a Cost Culture 3 Conditions

• Senior Leadership Engagement
• Analytical Toolset
• Disciplined Decision-Making

12
Need for Additional Controls

• NEED TO HOLD MANAGERS ACCOUNTABLE
• NEED TO MAKE MICP MORE THAN A PAPER DRILL
• CONTROLS ENABLE THE ARMY TO BE GOOD STEWARD OF
  RESOURCES
• BETTER CONTROLS MEAN BETTER VISIBILITY OVER
  RESOURCES AND THE EFFECTIVENESS OF OPERATIONS