Establishing a Strong Internal Control Review Program

Monica Allen, Manoah Geese, Lora CooperAugust 15, 2017

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 2

Why did the internal auditor cross the road?

A Little Humor

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 3

• Learning objectives• Who we are• Fiscal Accounting programs in scope• Where we started• Growth of an internal control review program• Review program maturity, past to present• Internal review approach• Audit program future• Conclusions• Authoritative guidance and resources• Contacts

Agenda

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 4

• Establishing the perfect internal control review program

• Determining areas to review

• Working with Program areas

• Involving executives and management

• Determining the most important part of the review

• Determining the primary drivers for a review

Learning Objectives

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 5

• On October 7, 2012, the Bureau of the Public Debt and the Financial Management Service consolidate to form the Bureau of the Fiscal Service (Fiscal Service)

• Fiscal Accounting is a component of Fiscal Service

• Audit Team Members……– are a dedicated team within Fiscal Accounting support office– include 11 accountants on staff including a supervisor and manager – have a mix of government and private sector experience– have substantial support from Fiscal Accounting management and the CFO’s office– perform internal review and external coordination activities

Who We Are

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 6

• Reports on the outstanding public debt of the United States totaling $20.0 trillion• When necessary applies ‘extraordinary measures’ to ensure compliance with

the statutory debt limit• Issues nearly $5.6 trillion in Treasury securities • Makes direct loans and loan guarantees to federal agencies of over $1.5 trillion • Provides management and accounting services for trust funds totaling over $3.3

trillion• Provides cash forecasting and reporting through the Daily Treasury Statement (DTS)• Reports on budgetary results through the Monthly Treasury Statement (MTS)• Releases the annual Financial Report of the United States Government (FR) • Completes all appropriation warrants and maintains central fund control over all

Congressional appropriations• Provides financial management services on a reimbursable basis

Fiscal Accounting Programs in Scope

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 7

Where We StartedMerger of Two Organizations, Two Review Program Structures

Leading to

Legacy Financial Management Service

ꚛ Performed by bureau CFO office

ꚛ Focus on Treasury Consolidated Financial Statements (selected)

ꚛ O&M mode

Legacy Bureau of the Public Debt

ꚛ Performed by dedicated support office, overseen by bureau CFO office

ꚛ Focus on Schedules of Federal Debt

ꚛ O&M mode

Fiscal Accounting component of Fiscal Serviceꚛ Performed by dedicated support office, overseen by bureau

CFO officeꚛ Focus on programs identified by riskꚛ Mix of O&M reviews and developing reviews

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 8

Growth of an Internal Control Program

2013 2014 2015 2016 20172012

• Bureau of the Fiscal Service formed• Performs internal control reviews of

Schedules of the Federal Debt2

Loans Receivable2

Treasury Managed Accounts1,2

International Assistance Program1,2

Agency Financial Management

Pre-implementation (SDAS) internal control review performed around Summary Debt processes

• Significant expansion FR review

• Assume responsibility for General Fund review

• Gap analysis based on risk • Initial review of Governmentwide Cash2

• Initial review of governmentwide warrant processing

• Initial review of General Fund by contractor

• Analyze risks posed by proposed changes to organizational structure

• Initial review of FR (partial)

1Responsibility for certain components resides with Treasury Departmental Offices 2Component of Treasury Consolidated Financial Statements

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 9

Review Program MaturityPast to Present

Financial Report of the US Government– initial review in FY 2015; target full review in FY 2017

Schedules of the General Fund of the US Government– initial review in FY 2016; target full review in FY 2017

Treasury Consolidated Financial Statements (selected)– initial review in FY 2016 of Governmentwide Cash

Schedules of the Federal Debt– initial review in FY 2006

Agency Financial Management– unmodified SSAE 16s/SAS 70s performed by independent auditor for 18

years

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 10

• Analysis is key; do not totally rely on desktop procedures• Utilize previous year work papers where applicable• Risk-based approach

– Materiality of financial statement lines– Employee turnover– Major change in business processes– Procedure maturity– Risk of fraud and management collusion– Consider rotational schedule for review rather than annual

• Executive involvement• Open communication channel with external auditors• Changing environment (not O&M)• Challenges

– Adequately planning and gaining understanding of processes under review– Independence (including personal relationships)– Separation of internal review and external coordination duties (independence vs

advocacy)– Time and resource Management

Internal Review Approach

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 11

• Execute our internally developed 3-year plan for Fiscal Accounting program internal reviews

• Support 21st consecutive unmodified audit opinion on the Schedules of Federal Debt from the Government Accounting Office

• Conduct reviews in a more integrated fashion rather than by program components

• Increase coverage over programs not currently reviewed • Increase efficiency by spending less time on documents with little value or are

duplicative• Continue strong reputation with Fiscal Accounting management and the

Bureau’s CFO office• Continue to be an asset to Fiscal Accounting and the Bureau to strengthen

internal controls and recognize vulnerabilities prior to negative operational impact

• Maintain an understanding of programs to adequately assess risk and key controls

Audit Program Future

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 12

• What does the perfect internal control review program look like? Answer: “Perfect” internal control review programs do not exist. Define where you need to be and get there incrementally

• What areas do you review? Answer: One size does not fit all. Know your agency/program risks and develop an internal control review program that responds to those risks

• How do I work with program areas? Answer: Open communication with programs under review is required for most effective results. Cultivate an image of being on the same team as the areas you are reviewing while maintaining your independence

• How much should executives and management be involved in the review? Answer: Visibility of your review program to your agency executives is essential. Brief executives face-to-face periodically on your review plans and results

• What is the most important part of an internal control review? Answer: Planning and understanding the processes under review are key to effectively completing a review. Take adequate time to plan your review

• What are the primary drivers for a review? Answer: External audits should not be the primary driver for your reviews. Assess your needs and plan accordingly

Conclusions

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 13

• Federal Manager’s Financial Integrity Act of 1982 (FMFIA)• GAO’s Standards for Internal Control in the Federal Government

“Green Book” • Office of Management and Budget (OMB) Circular A-123,

Management’s Responsibility for Enterprise Risk Management and Internal Control

• OMB Circular A-123, Appendix A• FY 2017 Treasury Implementation Guide for OMB Circular A-123

Appendix A: Internal Control Over Financial Reporting• Statement on Standards for Attestation Engagements (SSAE) No.

18, Attestation Standards: Certification and Recodification• OMB Bulletin 15-02, Audit Requirements for Federal Financial

Statements

Authoritative Guidance and Resources

L E A D ∙ T R A N S F O R M ∙ D E L I V E RPage 14

Remember

L E A D ∙ T R A N S F O R M ∙ D E L I V E R

Contact Information

Page 15

Primary ContactMonica AllenDirector, Program Support Division304.480.5135Monica.Allen@fiscal.treasury.gov

Secondary ContactsManoah GeeseManager, Audit, Planning, and Communications Branch304.480.5292Manoah.Geese@fiscal.treasury.gov

Lora CooperStaff Accountant, Program Support Division304.480.5203Lora.Cooper@fiscal.treasury.gov