U.S.
Department of Agriculture
Washington,
D.C.
DEPARTMENTAL REGULATION |
NUMBER: 1110-002
|
SUBJECT: Management Accountability and Control
|
DATE: April 14,
2004 |
OPI: Office of
the Chief Financial Officer |
Section Page
1 Purpose
and Scope 1
2 Cancellation/Special
Instructions 1
3 Background/Authority 2
4 Responsibilities 2
5 Other
Related Statutes 4
6 Definitions 5
1
PURPOSE AND SCOPE
* The purpose of this revision is to add references to
provisions of the USDA Management Control Manual, DM 1110-2, dated November 29,
2002, which provides detailed guidelines and procedures for effective
implementation of this regulation. This revision also adds additional related
statutes. An asterisk in the left
margin indicates added text.
This
regulation establishes department-wide policy for all agencies and staff
offices to follow to improve the accountability and effectiveness of USDA=s programs and operations through the use of sound systems
of internal and management controls. The intent of the policy contained in this
regulation is to ensure that programs are managed with integrity and that
program operations comply with applicable laws and regulations. As indicated in OMB Circular A-127,
Financial Management Systems, the internal controls associated with financial
system inputs, processing, and outputs form a portion of the management control
structure required by OMB Circular A-123, Management Accountability and
Control.
2 CANCELLATION/SPECIAL
INSTRUCTIONS
a This
regulation cancels Department Regulation 1110-2, Internal/Management Controls,
issued February 23, 1999.
b The
guidance contained in this regulation supplements and reinforces the statutory
requirements of the Federal Managers=
Financial Integrity Act of 1982 (FMFIA) and the policy guidance contained in
OMB Circular A-123, which pertains to all federal managers.
3 BACKGROUND/AUTHORITY
a FMFIA,
Pub. L. No. 97-255, requires agencies to develop cost-
effective internal accounting and administrative
controls to ensure that federal programs are operated efficiently, effectively,
and in compliance
with relevant laws.
Each year, the Secretary of Agriculture is required to prepare a
statement on whether USDA=s systems of internal control comply with standards
prescribed by the Comptroller General and whether such systems provide
reasonable assurance that the following objectives are met:
1 obligations
and costs comply with applicable laws;
2 funds, property, and
other assets are safeguarded against waste, loss, or mismanagement; and
3 revenues and
expenditures are properly recorded and accounted for to permit the preparation
of reliable financial and statistical reports and to maintain accountability
over the assets.
b The law
requires the Secretary to include a separate statement on whether USDA=s accounting systems conform with certain standards,
principles, and other specifications to ensure that federal managers have
timely, relevant, and consistent financial information for decision-making
purposes. For any material deficiency
that is identified during the reporting period, a corrective action plan and
schedule for correcting the deficiency must be included in the annual
statement.
c OMB Circular A-123 provides guidelines for improving the accountability and effectiveness of Federal programs and operations by establishing, assessing, correcting, and reporting on management controls. OMB Circular A-127 prescribes policies and standards to ensure that Federal financial systems provide complete, timely, reliable, and consistent information to support decision-making.
a All Sub-Cabinet Officials, Agency
Heads and Heads of Staff Offices within USDA will:
*
1 Comply with the requirements of the USDA
Management Control Manual, DM 1110-2.
2 Take systematic and proactive actions to implement appropriate, cost-effective internal and management controls for all processes which support the delivery of agency programs and operations.
3 Ensure
that internal and management controls for processes
supporting agency programs and operations are
commensurate with program risks and results-oriented management.
4 Ensure
that internal and management controls are an integral part of each organization=s entire cycle of planning, budgeting, program
delivery or operations, and accounting.
5 Ensure that clear documentation for management controls is readily available for examination.
6
Assess the risks and
external factors which may impair program delivery and operations on an annual
basis or more frequently, if needed.
7 Commensurate with the level of risk,
periodically assess the adequacy of management controls and document results.
* 8 Establish quantitative criteria that
reflect the relative risk and significance of potential deficiencies, where
appropriate, e.g., grant, loan, and purchase card programs, etc.
9 Utilize
all available review processes to identify significant weaknesses in internal
and management controls, develop corrective action plans for material
deficiencies, and disclose weaknesses to the next level of management.
10 Ensure
that the agency strategic or annual performance plans address the correction of
material deficiencies identified or disclosed.
11 Ensure
that all material deficiencies and significant non-material deficiencies are
corrected in a timely manner.
12 Ensure that all managers and employees
are aware of the importance of internal and management controls as well as
specific program risks, control objectives, and control measures.
13 Designate
a Management Control Officer to coordinate the efforts of each agency or
mission area and to act as a liaison with the Office of the Chief Financial
Officer (OCFO).
14 Ensure a
prompt response to data and reporting calls issued by the OCFO.
b On behalf of the Secretary of
Agriculture, the OCFO will:
1 Provide
oversight to component agencies to ensure that internal and management control
programs are established and maintained and that material deficiencies are
identified and reported.
2 Establish
and maintain systems for monitoring the timely correction of material
deficiencies which are reported to the President and Congress.
3 Issue
policy guidance and provide technical support to component agencies.
4 Evaluate
deficiencies reported by USDA agencies to determine materiality from a
Departmental perspective.
5 Prepare
and distribute any departmental or external reports of material deficiencies.
6 Keep
the Secretary and Sub-Cabinet officials abreast of the status of material
deficiencies identified and disclosed.
7 Issue
reporting guidelines and data calls, as deemed necessary.
5 OTHER
RELATED STATUTES
a Chief
Financial Officers Act of 1990, Pub. L. No. 101-576, as amended
b Government
Performance and Results Act of 1993, Pub. L. No. 103-62
*
c Government
Management Reform Act of 1994, Pub. L. No. 103-356
d Federal Financial Management Improvement
Act of 1996, Pub. L. No. 104-208
*
e Reports Consolidation Act of 2000, Pub. L. No. 106-531
*
f Federal Information Security Management Act of 2002, Pub. L.
No. 107 296, Title X
6 DEFINITIONS
a Management Controls. The organizational policies and procedures
used
to reasonably ensure that:
1 Programs
achieve their intended results.
2 Resources
are used consistent with agency and departmental
missions.
3 Programs
and resources are protected from waste, fraud, and mismanagement.
4 Laws
and regulations are followed.
5 Reliable
and timely information is obtained, maintained, reported and used for
decision-making.
b Management Accountability. Managers are responsible for the quality
and timeliness of program performance,
increasing productivity,
controlling costs and mitigating
adverse aspects of agency operations, and
assuring that programs are managed with
integrity and in compliance
with applicable law.
c Material Deficiency. Encompasses all Section 2 material
weaknesses and Section 4 financial management system nonconformances
collectively. Judgment must be
exercised as to the relative risk and significance of deficiencies. (See
APPENDIX A for criteria)
1 Material
Weakness. A deficiency or
internal/management control weakness in a process that results in a failure to
meet one or more of the objectives of
Section 2 of FMFIA and that the Secretary of Agriculture determines to be
significant enough to report outside the Department.
2 Material
Nonconformance. A deficiency or
weakness in financial management system operations that results in a failure to
meet one or more of the objectives of Section 4 and that the Secretary of
Agriculture determines to be significant enough to report outside the
Department.
d Reasonable Assurance. A satisfactory level of confidence in
achieving program, administrative, and financial management objectives effectively
and efficiently and safeguarding government resources under given
considerations of costs, benefits, and risks.
The emphasis is on the term Areasonable@ since Aabsolute@ assurance can never be given for any process.
e Evaluation of Management Control
System. A review of program and
operational processes and associated management controls to determine
compliance with principles, standards and related requirements from the
General Accounting Office (GAO), the OMB, or the Joint
Financial
Management Improvement Program=s ACore Financial
System Requirements.@ This
evaluation may be formal or informal and usually
includes an analysis of the general control
environment, an analysis of
inherent risk and factors external to the agency, and
a preliminary evaluation of existing safeguards. The evaluation may be conducted as a separate review or may use
the results of existing organizational review
processes such as OMB Circular A-130 computer security
reviews, OMB Circular A-127 reviews, IG audits and evaluations, GAO evaluations
and audits, and other management and consulting reviews. Documentation of results of evaluation must
be available for review.
f Risk Assessment. The identification and analysis of possible
risks in meeting the agency=s objectives
and forming a basis for how these risks should be managed or controlled and the
deterrents that should be implemented.
The methodology can vary because levels of risk are difficult to
quantify. A risk that has little
significance and low probability of occurring may require no action at
all. However, a risk with high
significance and high frequency may require much attention. Assessments should be based on total
organization knowledge of the agency programs.
Appropriate consideration should be given to previous control
evaluations such as audit reports, management control reviews, and management
evaluations, single audit reports, the degree and timeliness of correcting
known material management control weaknesses, and institutional knowledge of the
component.
g Internal Controls. A subset of management controls used to
assure that there is prevention or timely detection of unauthorized
acquisition, use, or disposition of an entity=s assets.
APPENDIX A
EVALUATING RISKS AND CRITERIA FOR REPORTING MATERIAL
WEAKNESSES AND MATERIAL NONCONFORMANCES
Factors which may assist agency management when
evaluating component risks include:
1. Analysis of the General Control
Environment. The general control
environment is management=s attitude and discipline concerning controls. An analysis of the general control
environment will determine if management=s
attitude is conducive to a strong and effective control system. The major factors that influence the general
control environment are: the presence of a defined organizational structure;
the formal delegation of authority; written policies and procedures which
reflect current practices; skilled personnel; planning, programming and
budgeting for program activity and operations; and reporting and monitoring the
execution of planned activity. A
subjective analysis of these factors will lead the evaluators to a conclusion
on the general control environment.
2. Analysis of Inherent Risk. Inherent risk, as defined by OMB Guidelines,
is Athe inherent potential for waste, loss, unauthorized
use, or misappropriation due to the nature of an activity itself.@ The major factors that affect the inherent risk of an
activity within a component are: size of budget, life of component, component
administration, nature of component activities, component=s impact outside the Department, and special
concerns. Inherent risk is outside the
control of management and usually stems from factors external to the agency,
such as those identified in the strategic planning process. The purpose of assessing inherent risk is to
gain an indication of the degree of risk in component operations so that
managers can relate the risks involved to control objectives, techniques, and
safeguards used and to the frequency of evaluations or risk assessments.
3. Preliminary Evaluation of Safeguards. The existence and adequacy of a component=s management control system must be evaluated by
agency officials exercising professional judgment based on their knowledge and
experience with the programs, processes, and operations within the
component. Some questions to consider
are whether employee control duties are properly segregated; whether
expenditures or other uses of resources are properly authorized; whether funds,
property or other resources are adequately protected; whether management
monitors controls and provides oversight to identify exceptions from normal
program operations; whether there is an active quality review staff to assure
periodically that controls are functioning as intended; and whether the results
of audits or other studies indicate control weaknesses.
A material weakness under Section 2 of the FMFIA
generally falls into one or more of the categories below:
1. Merits the attention of the Executive
Office of the President and the relevant Congressional oversight committees.
2. Violates statutory or regulatory
requirements.
3. Deprives the public of needed services.
4. Significantly weakens safeguards against
waste, loss, unauthorized use or misappropriation of funds, property or other
assets.
5. Significantly impairs the fulfillment of
the Department or organization mission.
6. Results in a conflict of interest.
7. Is of a nature that omission from the
annual FMFIA report could reflect adversely on the actual or perceived management
integrity of the Department.
All material weaknesses identified in audit reports
are to be Aconsidered@
for inclusion in the Integrity Report.
However, OMB=s definition of Amaterial
weakness@ should not be confused with use of the same term by
government auditors to identify management control weaknesses which, in their
opinion, pose a risk or a threat to the internal control systems of an audited
entity, such as a program or operation.
Auditors are required to identify and report those types of weaknesses
at any level of operation or organization, even if the management of the
audited entity would not report the weaknesses outside the agency.
A material nonconformance under Section 4 generally
falls into one or more of the categories below:
1. Merits the attention of the Executive
Office of the President and the relevant Congressional oversight committees.
2. Prevents USDA primary accounting systems
from achieving central control over agency financial transactions and resource
balances.
3. Prevents compliance of the primary
accounting system with standards published by GAO, which includes the
availability of timely, consistent, and relevant financial information for
decision-making purposes.