Management’s Responsibility for Internal Control (A-123)
GSA fulfilled the requirements of the OMB Circular A-123, Appendix A, during FY 2007. The Circular serves to emphasize management’s focus on ensuring that effective internal control over financial reporting is established and maintained throughout the Agency. Under the leadership of the Chief Financial Officer (CFO), GSA’s management plan includes a comprehensive program to complete the assessment of internal control over financial reporting. The CFO established the Senior Assessment Team (SAT) comprised of senior executives who provide leadership, oversight, and accountability for GSA’s internal control over financial reporting. The SAT conducted its assessment based on the five-step process used in the Implementation Guide developed by the CFO’s Council. The five steps are: Planning; Evaluate Internal Control at the Entity Level; Evaluate Internal Control at the Process Level; Testing at the Transaction Level; and Concluding, Reporting, and Correcting Deficiencies and Weaknesses.
GSA determined the scope of financial reports to be included in the assessment and established materiality. The scope included all material line items on the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, Statement of Budgetary Resources, Notes to the Financial Statements and the SF 133, Report on Budget Execution, and Budgetary Resources.
GSA management identified the key processes feeding into material line items by reviewing financial statements and related disclosures, cycle memoranda, flowcharts, and other information for the two major revolving funds and other combined funds. Key processes feeding into the financial statement line items include Unfilled Customer Orders, Obligations, Fund Balance with Treasury, Cash Receipts, Cash Disbursements, Financial Reporting, Budget (Administrative Control of Funds), Revenue Accruals, and Estimates.
Using a risk-based approach, a rotational plan was developed for financial and information technology (IT) controls to ensure that controls are assessed in each location throughout GSA within a three-year period. As part of the rotation plan, some systems will undergo full general and application controls testing in a given year and the others will undergo limited general and application controls testing for the year. FY 2007 was the second year of the three-year period, and IT and financial controls were tested in accordance with the plan.
The SAT conducted a comprehensive review of test results considering the likelihood and degree of the potential for misstatements and determined whether the consolidations of deficiencies are incidental, create a significant deficiency, or rise to the level of material weakness for reporting in the assurance statement. Based on the exceptions noted and the impact on the financial statements, the SAT concluded no material weakness existed as of June 30, 2007.
GSA has made significant progress in validating balances in its budgetary accounts. Although vast improvement has been made in resolving unfilled customer orders and un-liquidated obligations, incidences of invalid amounts still remain. Improvement of these processes continue, and management is monitoring corrective actions.
Despite the above deficiencies, GSA can provide reasonable assurance that its internal control over financial reporting as of September 30, 2007, was operating effectively and no material weakness existed in the design or operation of internal control over financial reporting.