Circular No. A-127
Revised
July 23, 1993
Circular No.
A-127--Revised
Transmittal Memorandum No. 1
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Financial Management Systems
Circular No. A-127 prescribes policies and standards for executive departments and agencies to follow in developing, operating, evaluating, and reporting on financial management systems. This Transmittal Memorandum contains updated guidance which eliminates unnecessary overlap between Circular No. A-127 and Circular A-123, "Internal Control Systems"; eliminates unnecessary overlap between Circular No. A-127 and with Circular A-130, "Management of Federal Information Resources"; clarifies terminology and definitions; updates the Circular for statutory and policy changes; clarifies certain agency responsibilities; and eliminates outdated guidance. This Circular replaces and rescinds OMB Circular No. A-127 dated December 19, 1984. This Circular also rescinds OMB memorandum M-85-10, "Financial Management and Accounting Objectives" and M-85-16, "Guidelines for Evaluating Financial Management/Accounting Systems."
Leon E. Panetta
Director
Attachment
Transmittal Memorandum No. 1
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Financial Management Systems
1.
Purpose
2. Rescission
3. Authorities
4. Applicability and Scope
5. Definitions
6. Policy
7. Financial Management System Requirements
8. Financial Management System Improvements
9. Assignment of Responsibilities
10. Information Contact
11. Review Date
12. Effective Date
1. Purpose. OMB Circular No. A-127 (hereafter referred to as Circular A-127) prescribes policies and standards for executive departments and agencies to follow in developing, operating, evaluating, and reporting on financial management systems.
2. Rescission. This Circular replaces and rescinds Circular A-127 dated December 19, 1984. This Circular also rescinds OMB memorandum M-85-10, "Financial Management and Accounting Objectives" and M-85-16, "Guidelines for Evaluating Financial Management/Accounting Systems."
3. Authorities. This Circular is issued pursuant to the Chief Financial Officers Act (CFOs Act) of 1990, P.L. 101-576 and the Federal Managers' Financial Integrity Act of 1982, P.L. 97-255 (31 U.S.C. 3512 et seq.); and 31 U.S.C. Chapter 11.
- The policies
in this Circular apply to the financial management systems of all
agencies as defined in Section 5 of this Circular. Agencies not included
in the CFOs Act are exempted from certain requirements as noted in
Section 9 of this Circular.
- The policies
contained in OMB Circular No. A-130, "Management of Federal Information
Resources" (hereafter referred to as Circular A-130) govern agency
management of information systems. The policies contained in
Circular A-130 apply to all agency information resources, including
financial management systems as defined in this Circular.
- The policies and procedures contained in OMB Circular No. A-123, "Internal Control Systems," (hereafter referred to as Circular A-123) govern executive departments and agencies in establishing, maintaining, evaluating, improving, and reporting on internal controls in their program and administrative activities. Policies and references pertaining to internal controls contained in this Circular serve to amplify policies contained in Circular A-123 or highlight requirements unique to financial management systems.
5. Definitions. For the purposes of this Circular, the following definitions apply:
The term "agency" means any executive department, military department, independent agency, government corporation, government controlled corporation, or other establishment in the executive branch of the government.
The term "information system" means the organized collection, processing, transmission, and dissemination of information in accordance with defined procedures, whether automated or manual. Information systems include non- financial, financial, and mixed systems as defined in this Circular.
The term "financial system" means an information system, comprised of one or more applications, that is used for any of the following:
-- supporting financial planning or budgeting activities;
-- accumulating and reporting cost information; or
-- supporting the preparation of financial statements.
A financial system supports the financial functions required to track financial events, provide financial information significant to the financial management of the agency, and/or required for the preparation of financial statements. A financial system encompasses automated and manual processes, procedures, controls, data, hardware, software, and support personnel dedicated to the operation and maintenance of system functions. A financial system may include multiple applications that are integrated through a common database or are electronically interfaced, as necessary, to meet defined data and processing requirements.
The term "non-financial system" means an information system that supports non-financial functions of the Federal government or components thereof and any financial data included in the system are insignificant to agency financial management and/or not required for the preparation of financial statements.
The term "mixed system" means an information system that supports both financial and non-financial functions of the Federal government or components thereof.
The term "financial management systems" means the financial systems and the financial portions of mixed systems necessary to support financial management.
The term "single, integrated financial management system" means a unified set of financial systems and the financial portions of mixed systems encompassing the software, hardware, personnel, processes (manual and automated), procedures, controls and data necessary to carry out financial management functions, manage financial operations of the agency and report on the agency's financial status to central agencies, Congress and the public. Unified means that the systems are planned for and managed together, operated in an integrated fashion, and linked together electronically in an efficient and effective manner to provide agency-wide financial system support necessary to carry out the agency's mission and support the agency's financial management needs.
The term "application (financial or mixed system)" means a group of interrelated components of financial or mixed systems which supports one or more functions and has the following characteristics:
-- common data element definitions
-- standardized processing for similar types of transactions
-- common version control over software
The term "financial event" means any occurrence having financial consequences to the Federal government related to the receipt of appropriations or other financial resources; acquisition of goods or services; payments or collections; recognition of guarantees, benefits to be provided, or other potential liabilities; or other reportable financial activities.
The term "work process" means a series of activities operating together to achieve an end or desired result (mission, goal or objective). A work process is a workflow or series of steps necessary for the initiation, tracking and delivery of services or outputs. The process reflects how resources are managed to deliver the services or outputs and may cut across existing or future organizational boundaries.
6. Policy. Financial management in the Federal government requires accountability of financial and program managers for financial results of actions taken, control over the Federal government's financial resources and protection of Federal assets. To enable these requirements to be met, financial management systems must be in place to process and record financial events effectively and efficiently, and to provide complete, timely, reliable and consistent information for decision makers and the public.
The Federal government's financial management system policy is to establish government-wide financial systems and compatible agency systems, with standardized information and electronic data exchange between central management agency and individual operating agency systems, to meet the requirements of good financial management. These systems shall provide complete, reliable, consistent, timely and useful financial management information on Federal government operations to enable central management agencies, individual operating agencies, divisions, bureaus and other subunits to carry out their fiduciary responsibilities; deter fraud, waste, and abuse of Federal government resources; and facilitate efficient and effective delivery of programs through relating financial consequences to program performance.
In support of this objective, each agency shall establish and maintain a single, integrated financial management system that complies with:
-- internal control standards as defined in Circular A-123 and/or successor documents;
-- information resource management policy as defined in Circular A-130 and/or successor documents; and
-- operating policies and related requirements prescribed by OMB, the Department of the Treasury and the agency.
An agency's single, integrated financial management system shall comply with the characteristics outlined in Section 7 of this Circular.
7. Financial Management System Requirements. Agency financial management systems shall comply with the following requirements:
- Agency-wide
Financial Information Classification Structure. The design of the
financial management systems shall reflect an agency-wide financial
information classification structure that is consistent with the
U.S. Government Standard General Ledger, provides for tracking of
specific program expenditures, and covers financial and financially
related information. This structure will minimize data redundancy,
ensure that consistent information is collected for similar transactions
throughout the agency, encourage consistent formats for entering
data directly into the financial management systems, and ensure that
consistent information is readily available and provided to internal
managers at all levels within the organization. Financial management
systems' designs shall support agency budget, accounting and financial
management reporting processes by providing consistent information
for budget formulation, budget execution, programmatic and financial
management, performance measurement and financial statement preparation.
- Integrated
Financial Management Systems. Financial management systems shall
be designed to provide for effective and efficient interrelationships
between software, hardware, personnel, procedures, controls,
and data contained within the systems. In doing so, they shall
have the following characteristics:
-- Common Data Elements. Standard data classifications (definitions and formats) shall be established and used for recording financial events. Common data elements shall be used to meet reporting requirements and, to the extent possible, used throughout the agency for collection, storage and retrieval of financial information. Government-wide information standards (e.g., the U.S. Government Standard General Ledger) and other external reporting requirements shall be incorporated into the agency's standard data classification requirements.
-- Common Transaction Processing. Common processes shall be used for processing similar kinds of transactions throughout the system to enable these transactions to be reported in a consistent manner.
-- Consistent Internal Controls. Internal controls over data entry, transaction processing and reporting shall be applied consistently throughout the system to ensure the validity of information and protection of Federal government resources.
-- Efficient Transaction Entry. Financial system designs shall eliminate unnecessary duplication of transaction entry. Wherever appropriate, data needed by the systems to support financial functions shall be entered only once and other parts of the system shall be updated through electronic means consistent with the timing requirements of normal business/transaction cycles.
- Application
of the U.S. Government Standard General Ledger at the Transaction
Level. Financial events shall be recorded by agencies throughout
the financial management system applying the requirements of
the U.S. Government Standard General Ledger (SGL) at the transaction
level. Application of the SGL at the transaction level means
that the financial management systems will process transactions
following the definitions and defined uses of the general ledger
accounts as described in the SGL. Compliance with this standard
requires:
-- Data in Financial Reports Consistent with the SGL. Reports produced by the systems that provide financial information, whether used internally or externally, shall provide financial data that can be traced directly to the SGL accounts. Agencies may supplement their application of the SGL to meet agency specific information requirements in accordance with guidance provided in the U.S. Government Standard General Ledger supplement to the Treasury Financial Manual.
-- Transactions Recorded Consistent with SGL Rules. The criteria (e.g., timing, processing rules/conditions) for recording financial events in all financial management systems shall be consistent with accounting transaction definitions and processing rules defined in the SGL.
-- Supporting Transaction Detail for SGL Accounts Readily Available. Transaction detail supporting SGL accounts shall be available in the financial management systems and directly traceable to specific SGL account codes.
- Federal
Accounting Standards. Agency financial management systems shall
maintain accounting data to permit reporting in accordance with
accounting standards recommended by the Federal Accounting Standards
Advisory Board (FASAB) and issued by the Director of OMB, and
reporting requirements issued by the Director of OMB and/or the
Secretary of the Treasury. Where no accounting standards have
been recommended by FASAB and issued by the Director of OMB,
the systems shall maintain data in accordance with the applicable
accounting standards used by the agency for preparation of its
financial statements. Agency financial management systems shall
be designed flexibly to adapt to changes in accounting standards.
- Financial
Reporting. The agency financial management system shall meet
the following agency reporting requirements:
-- Agency Financial Management Reporting. The agency financial management system shall be able to provide financial information in a timely and useful fashion to (1) support management's fiduciary role; (2) support the legal, regulatory and other special management requirements of the agency; (3) support budget formulation and execution functions; (4) support fiscal management of program delivery and program decision making, (5) comply with internal and external reporting requirements, including, as necessary, the requirements for financial statements prepared in accordance with the form and content prescribed by OMB and reporting requirements prescribed by Treasury; and (6) monitor the financial management system to ensure the integrity of financial data.
-- Performance Measures. Agency financial management systems shall be able to capture and produce financial information required to measure program performance, financial performance, and financial management performance as needed to support budgeting, program management and financial statement presentation. As new performance measures are established, agencies shall incorporate the necessary information and reporting requirements, as appropriate and feasible, into their financial management systems.
- Budget
Reporting. Agency financial management systems shall enable the
agency to prepare, execute and report on the agency's budget
in accordance with the requirements of OMB Circular No. A-11(Preparation
and Submission of Budget Estimates), OMB Circular No. A-34 (Instructions
on Budget Execution) and other circulars and bulletins issued
by the Office of Management and Budget.
- Functional
Requirements. Agency financial management systems shall conform
to existing applicable functional requirements for the design,
development, operation, and maintenance of financial management
systems. Functional requirements are defined in a series of publications
entitled Federal Financial Management Systems Requirements issued
by the Joint Financial Management Improvement Program (JFMIP).
Additional functional requirements may be established through
OMB circulars and bulletins and the Treasury Financial Manual.
Agencies are expected to implement expeditiously new functional
requirements as they are established and/or made effective.
- Computer
Security Act Requirements. Agencies shall plan for and incorporate
security controls in accordance with the Computer Security Act
of 1987 and Circular A-130 for those financial management systems
that contain "sensitive information" as defined by the Computer
Security Act.
- Documentation.
Agency financial management systems and processing instructions
shall be clearly documented in hard copy or electronically in
accordance with (a) the requirements contained in the Federal
Financial Management Systems Requirements documents published
by JFMIP or (b) other applicable requirements. All documentation
(software, system, operations, user manuals, operating procedures,
etc.) shall be kept up- to-date and be readily available for
examination. System user documentation shall be in sufficient
detail to permit a person, knowledgeable of the agency's programs
and of systems generally, to obtain a comprehensive understanding
of the entire operation of each system. Technical systems documentation
such as requirements documents, systems specifications and operating
instructions shall be adequate to enable technical personnel
to operate the system in an effective and efficient manner.
- Internal
Controls. The financial management systems shall include a system
of internal controls that ensure resource use is consistent with
laws, regulations, and policies; resources are safeguarded against
waste, loss, and misuse; and reliable data are obtained, maintained,
and disclosed in reports. Appropriate internal controls shall
be applied to all system inputs, processing, and outputs. Such
system related controls form a portion of the management control
structure required by Circular A-123.
- Training
and User Support. Adequate training and appropriate user support
shall be provided to the users of the financial management systems,
based on the level, responsibility and roles of individual users,
to enable the users of the systems at all levels to understand,
operate and maintain the system.
- Maintenance. On-going maintenance of the financial management systems shall be performed to enable the systems to continue to operate in an effective and efficient manner. The agency shall periodically evaluate how effectively and efficiently the financial management systems support the agency's changing business practices and make appropriate modifications.
8. Financial Management System Improvements. In improving financial management systems, agencies shall follow the information technology management policies presented in Circular A-130. In addition, agencies shall comply with the following policies in designing, developing, implementing, operating and maintaining financial management systems:
- Improvement
in Agency Work Processes. Designs for financial systems and mixed
systems shall be based on the financial and programmatic information
and processing needs of the agency. As part of any financial management
system design effort, agencies are to analyze how system improvements,
new technology supporting financial management systems, and modifications
to work processes can together enhance agency operations and improve
program and financial management. The reassessment of information
and processing needs shall be an integral part of the determination
of system's requirements. Process redesign shall be considered an
essential step towards meeting user needs in program management,
financial management, and budgeting. Concurrent with developing and
implementing integrated financial management systems, agencies shall
consider program operations, roles and responsibilities, and policies/practices
to identify related changes necessary to facilitate financial management
systems operational efficiency and effectiveness.
- Cost Effective
and Efficient Development and Operation of Financial Management
Systems. Financial management system development and implementation
efforts shall seek cost effective and efficient solutions as
required by Circular A-130. A custom software development approach
for financial management systems shall be used as a last resort
and only after consideration of all appropriate software options,
including the following:
-- use of the agency's existing system with enhancements/upgrades,
-- use of another system within the department/agency,
-- use of an existing system at another department/agency,
-- use of a commercial "off-the-shelf" software package,
-- use of a system under development at another department, or
-- use of a private vendor's service.
The cost effectiveness of developing custom software shall be clear and documented in a benefit/cost analysis that includes the justification of the unique nature of the system's functions that preclude the use of alternative approaches. This analysis shall be made available to OMB for review upon request.
- Cross
or Private Servicing. Cross servicing of financial system support,
where one agency or a division within an agency provides financial
management software and processing support to another agency
or division within an agency, or private servicing through commercial
vendors shall be used whenever feasible and cost effective, as
a solution to meet Federal government financial management system
needs. Agencies providing cross-servicing support shall ensure
that systems are maintained appropriately; fees for service are
reasonable; adequate conversion support is provided; procedures,
training and documentation are available and periodic service
reviews are conducted. Small agencies are particularly encouraged
to use cross-servicing to meet fundamental core financial and
payroll/personnel processing and reporting requirements.
- Use of "Off-the-Shelf" Software.
GSA shall maintain the Financial Management System Software (FMSS)
Multiple Award Schedule for vendors providing acceptable software
which meets the core financial system requirements as defined
in the Core Financial System Requirements document published
by JFMIP and other applicable accounting principles, standards,
and related requirements as defined by OMB for governmentwide
use. Such software packages will be "benchmarked," as appropriate,
by an independent team approved by the OMB Office of Federal
Financial Management (OFFM) or its designee to assure the software
complies with such requirements. Periodic recertification will
be required to ensure that software continues to support financial
system requirements.
Agencies replacing software to meet core financial system requirements must use "off-the-shelf" software from the GSA FMSS Multiple Award Schedule unless a waiver is granted under the Federal Information Resources Management Regulations (FIRMR). Agencies obtaining such a waiver must ensure the system, whether resulting from a custom software development approach or from software existing within or external to the agency, is "benchmarked" by an independent team approved by OFFM or its designee.
Financial management system software meeting requirements beyond the scope of the Core Financial System Requirements document may also be made available under the GSA FMSS Multiple Award Schedule as agreed to by the OFFM or its designee.
- Joint
Development of Software. Agencies with similar financial management
functions, after considering "off-the-shelf" software solutions,
are encouraged to undertake joint development efforts by pooling
resources and developing common approaches for meeting similar
financial functions. The designs for jointly developed software
shall contain the flexibility and other features needed for transportability
of the system to other agencies and/or cross-servicing.
- Transfer of Agency Financial Management Software. In cases where
an agency determines it is more efficient and effective to use
or adopt the software of another agency to meet its financial management
system requirements, the agency shall ensure the following:
- The software
meets the financial management system requirements in Section
7 of this Circular.
- A formal
written agreement on the transfer of software is prepared
and approved by all parties. The agreement shall cover
the full scope of support services to be provided including
system modifications, maintenance and related costs;
- Any
necessary support requirements not covered in the
agreement shall be provided by the agency and such
support, including implementation support and training,
shall be assessed and determined to be adequate.
- An ongoing relationship for determining future enhancements shall be established between the parties involved.
Any compensation arrangements for the transfer of the software shall conform to Circular A-130 policies. - The software
meets the financial management system requirements in Section
7 of this Circular.
9. Assignment of Responsibilities.
- Agency Responsibilities.
Agencies shall perform the financial management system responsibilities
prescribed by legislation referenced in Section 3 "Authorities" of
this Circular. In addition, each agency shall take the following
actions:
- Develop
and Maintain an Agency-wide Inventory of Financial Management
Systems.
Agencies are required to maintain an inventory of existing and proposed financial management systems. Annually CFOs Act agencies will provide OMB with financial management system information in compliance with the financial system planning guidance issued by OMB for the Agency CFO 5-Year Financial Management Plan. Financial management systems shall be included in the agency information systems inventory following the information system inventory policies established in OMB Circular A-130.
- Develop
and Maintain Agency-wide Financial Management System Plans.
Agencies are required to prepare annual financial management systems plans. These plans shall be developed in accordance with OMB guidance issued annually. Financial management system planning guidance for CFOs Act agencies shall be included in the guidance for developing CFO Financial Management 5-Year Plans.
The financial management systems strategies and tactical initiatives included in the CFO Financial Management 5-Year Plan shall be incorporated into the agency's five year information systems plan prepared in compliance with Circular A-130.
Agencies not covered by the CFOs Act shall prepare plans following the CFO Financial Management 5- Year Plan guidance but are not required to submit the plans to OMB. Financial management system plans shall be an integral part of the agency's overall planning process and updated for significant events that result in material changes to the plan as they occur. - Review
of Agency Financial Management Systems.
Each agency shall ensure appropriate reviews are conducted of its financial management systems. The results of these reviews shall be considered when developing financial management systems plans. OMB encourages agencies to coordinate and, where appropriate, combine required reviews. Reviews must comply with policies for (1) reviews of internal controls undertaken and reported on in accordance with the guidance issued by OMB for compliance with the requirements of the Federal Managers' Financial Integrity Act (FMFIA) and Circular A-123, (2) reviews of conformance of financial management systems with the principles, standards and related requirements in Section 7 of this Circular undertaken in accordance with the guidance issued by OMB for compliance with requirements of the FMFIA, and (3) reviews of systems and security as required under provisions of Circular A-130.
- Develop and Maintain Agency Financial Management
System Directives.
Agencies shall issue, update, and maintain agency- wide financial management system directives to reflect policies defined in this Circular.
- GSA Responsibilities. GSA is responsible for maintaining the FMSS Multiple Award Schedule for Federal financial management software and related services in accordance with guidance provided by OMB.
10. Information Contact. All questions or inquiries should be addressed to the Office of Federal Financial Management, Federal Financial Systems Branch, telephone number 202/395-6903.
11. Review Date. This Circular shall be reviewed three years from the date of issuance to ascertain its effectiveness.