Management Internal Control Program



FINANCIAL MANAGEMENT SCHOOLUS ARMY SOLDIER SUPPORT INSTITUTEFORT JACKSON, SC 29207-7045IDENTIFY THE PRINCIPLES OF THE MANAGERS’ INTERNAL CONTROL PROGRAM SUMMARY SHEETOBJECTIVES:Define the Managers’ Internal Control Program.Describe the legislative and regulatory history of the Army Managers’ Internal Control Program.Describe the responsibilities within the Department of the Army for the Managers’ Internal Control Program.Explain the standards related to the Managers’ Internal Control Program.REFERENCES: AR 112, Managers’ Internal Control ProgramDoDI 5010.40 Managers’ Internal Control Program (MICP) InstructionGAO Standards for Internal Control in the Federal GovernmentOMB Circular A-123 Management’s Responsibility for Internal ControlFederal Managers Financial Integrity Act of 1982 (PL97-255)DEFINITION OF INTERNAL CONTROLS: In layman's terms, internal controls are the means managers use to make sure that what they want done (e.g., compliance with regulatory requirements) gets done every day. Controls include the plan of organization, methods, and procedures adopted by management to provide reasonable assurance that:Resource use is consistent with laws, regulations, and policies (Administrative Controls).Resources are safeguarded against waste, loss and misuse (Accounting Controls).Reliable data is obtained, maintained, and objectively disclosed in reports (Accounting Controls).RESPONSIBILITIES: The ultimate responsibility for good controls rests with management. Controls should not be looked upon as separate, specialized systems within the Army, but they should be recognized as an integral part of each system that management uses to regulate and guide its operations. Good internal controls are essential to achieving the proper conduct of government business with full accountability for the resources made available. Good internal controls also facilitate the achievement of management objectives by serving as checks and balances against undesired actions. In preventing negative consequences from occurring, internal controls help achieve the positive aims of program managers. In summary, internal controls are a combination of management objectives and techniques.LEGISLATIVE AND REGULATORY BACKGROUND:In 1950, the Accounting and Auditing Act was passed. The Act required, among other things, that agency heads establish and maintain adequate systems of accounting controls.The Federal Manager's Financial Integrity Act of 1982, or the Integrity Act, renewed the focus on the need to strengthen internal controls and added an additional requirement that agency heads also maintain adequate systems of administrative controls in addition to accounting controls. The Integrity Act requires that agency internal control systems be periodically evaluated against standards developed by the Comptroller General and that the heads of executive agencies report annually on their system's status to the President and Congress.Office of Management and Budget (OMB) Circular A123 implements the Integrity Act in the Executive Branch of the government. OMB Circular A123 provides the backbone of the Army Managers’ Internal Control Program. The Circular mandates that each agency establish a cost-effective system of internal controls that would provide reasonable assurance those government resources are protected against fraud, waste, abuse and mismanagement. Also, the Circular mandates that both existing and new programs are effectively and efficiently managed to achieve the goals of the agency.Army Regulation 112, Managers’ Internal Control Program. The Army policy and guidance regulation pertaining to the Army Managers’ Internal Control Program. The regulation implements public law, OMB, and Department of Defense (DoD) guidance, which is regulatory, not statutory.KEY PLAYERS:The Secretary of the Army (SA) reports the status of the Army Managers’ Internal Control Program to the Secretary of Defense each year by submitting a statement of assurance.The Assistant Secretary of the Army (Financial Management and Comptroller) (ASA (FM&C)) has overall responsibility for implementing the Managers’ Internal Control Program.The Deputy Assistant Secretary of the Army (Financial Operations), delegated by the ASA (FM&C), acts as the executive agent, for providing overall guidance and direction for implementing the Managers’ Internal Control Program.The Director, Army Working Capital Fund Audit Readiness is further tasked to accomplish the following:Formulate Army policy for implementing the Integrity Act and issue administrative guidance and instructions.Coordinate with the U.S. Army Audit Agency (USAAA) and HQDA functional proponents on the identification of internal control weaknesses that merit reporting as material weaknesses on the SA's annual statement.Develop and maintain a tracking system to ensure that material weaknesses reported in the SA's annual report are corrected in a timely manner.HQDA staff functional proponents are responsible for:Determining, in consultation with USAAA, the key internal controls and explicitly identifying these in appropriate regulations.Developing Internal Control Evaluation Checklists or identify other evaluation methods and include these in applicable Army Regulation.Determining which internal control weaknesses merit reporting as material weaknesses in the SA's annual statement and provide the Army material weakness description and plan of corrective action to the ASA (FM&C).The Auditor General is responsible for:Providing technical advice, assistance, and consultation on internal controls to HQDA functional proponents as necessary.Coordinating with HQDA functional proponents on the determination of key internal controls and advise in the development of Internal Control Evaluation Checklists.Evaluating the effectiveness of internal controls, the adequacy of internal control evaluations and actions taken to correct material weaknesses during the normal course of audits and providing periodic feedback to ASA (FM&C).Preparing and submitting an annual statement to the SA assessing implementation of the internal control process.The Inspector General will accomplish the following:Consider internal controls in the assessment of systemic issues and problems and make appropriate recommendations during the normal course of their inspections.Provide periodic reports to ASA (FM&C) summarizing internal control weaknesses identified in inspections.The Senior Management Council composed as a Senior Level Steering Group (SLSG) is chaired by the ASA (FM&C) with membership from all HQDA functional proponents. They meet to provide advice on internal control matters and identify internal control weaknesses that merit reporting in the SA's annual statement. (Reporting organizations are encouraged to have their own councils).Reporting Organizations. Headquarters DA staff agencies, MACOMs, and separate reporting field operating agencies are the primary reporting organizations in the Army Internal control Program. The heads of these organizations are responsible for:Providing the leadership and support needed to ensure that internal controls are in place and operating effectively.Designating a senior responsible official to ensure that the internal control process is effectively implemented within their organization.Designating the assessable units within the organization.Signing and submitting an annual statement of assurance that accurately describes the status of internal controls within their organization, to include any material weaknesses and plans for corrective action, and submit this statement to ASA (FM&C).Assessable Unit Managers are designated by the head of the reporting organization and they will:Ensure managers are trained and understand their internal control responsibilities.Ensure a Managers’ Internal Control Plan (MICP) is established and maintained to describe how key internal controls in the assessable unit will be evaluated over a five year period.Ensure that internal control evaluations are conducted in accordance with the MICP and the requirements of Army Regulation 112.Report through the chain of command any material weaknesses in internal controls, establish and implement plans to correct those material weaknesses, and track progress in executing those plans until the material weaknesses are manders/managers at all levels are responsible for:Maintaining effective internal controls, assessing key internal controls, and identifying and correcting weaknesses in those controls.Ensuring that required internal control evaluations are conducted in accordance with the governing MICP.Ensuring that internal control responsibilities are explicitly covered in the performance agreements of commanders and managers down to assessable unit manager level.Establishing corrective action plans and milestone dates to ensure correction of internal control deficiencies.INTERNAL CONTROL POLICY:Reporting organizations will be segmented into assessable units consisting of subordinate organizations headed by senior managers, preferably at General Officer/Senior Executive Service level, but not lower than Colonel/GS15 level. The only exception is at Army garrison level, where assessable units may be headed by the senior functional managers (e.g., Director of Logistics (DOL), Director of Public Works (DPW), Director of Personnel and Community Activities (DPCA)).Managers are responsible for applying the Comptroller General's Standards (see paragraph 10.) and for conducting periodic evaluations of key internal controls identified by HQDA functional proponents.EVALUATION:An internal control evaluation is a detailed, systematic and comprehensive examination of the key internal controls to determine whether they are in place, being used as intended, and effective in achieving their purpose.A requirement exists to conduct formal internal control evaluations of key internal controls at least once every five years.The assessable unit manager's certification demonstrates that the required internal control evaluation has been conducted and will be documented on DA Form 112R (Internal control Evaluation Statement).HQDA functional proponents may identify an internal control evaluation process for use in evaluating key internal controls. All internal control evaluations will be conducted in one of two ways:HQDA functional proponents may develop an Internal Control Evaluation Checklist and publish it as an appendix in the governing AR for use by managers in evaluating key internal controls.In many areas there may be existing management review processes that meet, or can be modified to meet, the basic requirements of an internal control evaluation. If this plan is used, HQDA functional proponents must provide the necessary information as an appendix to the governing AR.REPORTING:Commanders/managers with internal control responsibilities submit an annual statement through command channels. The statement identifies what has been done to substantiate a determination of reasonable assurance that controls are adequate to achieve the objectives of the Integrity Act. These statements are then consolidated into an annual statement signed by the Secretary of the Army, and submitted through the Secretary of Defense to the President and Congress. The statements also identify any material weaknesses detected and the planned corrective actions.An internal control weakness is the absence of or noncompliance with any identified key internal control necessary for accomplishing regulatory requirements. At the assessable unit level, the initial determination as to whether a weakness is or is not material is based on the assessable unit manager’s judgment about the relative significance of the problem. If the weakness is considered material and reported, the determination of materiality is then reevaluated at each successive level of command. The final determination of whether a weakness merits reporting in the SA's annual statement is made by the HQDA functional proponent.STANDARDS: The Comptroller General of the United States has established standards that define the minimum level of quality acceptable for internal control systems in operation. There are five standards for internal control: control environment, risk assessment, control activities, information and communications, and monitoring. Ensuring that controls in each organization are in accordance with these standards is the responsibility of every Army manager.Internal Control Environment. Management and employees should establish and maintain and environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management.Internal Control Risk Assessment. Internal control should provide for an assessment of the risks the Army faces from both external and internal sources.Control Activities. Internal control activities help ensure that management’s directives are carried out. The control activities should be effective and efficient in accomplishing the Army’s control objectives. Examples of control activities include:Top level reviews of actual performance.Reviews by management at functional or activity level.Management of human capital.Controls over information processing.Physical control over vulnerable assets.Establishment and review of performance measures and indicators.Segregation of duties.Proper execution of transactions and events.Accurate and timely recording of transactions and events.Access restrictions to and accountability for resources and records.Appropriate documentation of transactions and internal control.General control and application control for information rmation and Communications. Information should be recorded and communicated to management and others within the entity who need it in a form and within a timeframe that enables them to carry out their internal control and other responsibilities.Monitoring. Internal control monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved.USEFUL WEBSITES:Army Managers’ Internal Control Programasafm.army.mil/MC/MC.htmFederal Managers Financial Integrity Act of 1982 (PL97-255) OMB Circular A123 Management Accountability and Control omb/circulars/index.html GAO Standards for Internal Controls in the Federal Government DoDI 5010.40 Joint Test and Evaluation Program 7/29/10dtic.mil/whs/directives/corres/pdf/501040p.pdf ................
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