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Department of the Navy DON Business Transformation Update “The Role of OMB A-123, Appendix A (Federal Version of Sar PowerPoint Presentation
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Department of the Navy DON Business Transformation Update “The Role of OMB A-123, Appendix A (Federal Version of Sarbanes-Oxley)”. Presented to: ASMC Washington Chapter 11 October 2006.

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slide1

Department of the Navy

DON Business Transformation Update

“The Role of OMB A-123, Appendix A (Federal Version of Sarbanes-Oxley)”

Presented to:

ASMC Washington Chapter

11 October 2006

slide2

Accounting irregularities in the private sector led Congress to tighten reporting requirements for businesses. OMB Circular A-123 (Appendix A) establishes comparable Internal Controls reporting for the federal sector. FIAR, FIP, and Managers’ Internal Control Program are all integrated.

  • Sarbanes-Oxley (SOX) Act of 2002 and FMFIA/OMB A-123
    • Enron, WorldCom, and Tyco accounting scandals resulted in a decline of public trust
    • Public should also have trust in how their government is using taxpayer dollars
    • Both Acts require management (CEOs, CFOs, Secretaries) to certify, or attest to the effectiveness of internal control over financial reporting. However, SOX prescribes criminal penalties.
  • Relationship to the DoD
    • DoD Component Heads must provide certification to OSD that controls are effective
    • Reported separately in the Annual Statement of Assurance (SOA), under the purview of FMFIA Over Financial Reporting
    • Implementation is integrated into the FIAR effort
  • Relationship to DON Financial Improvement Program (FIP)
    • Serves as the “validation” process of the FIP
    • Provides sustainment of FIP efforts
    • Implementation of OMB A-123, Appendix A is integrated into DON FIP effort
slide3

A clean audit on private sector financial statements is mandatory and ingrained; it reflects high-quality financial information and organizational credibility.

Consider that:

  • In the private sector, achieving an unqualified or “clean” opinion is considered normal business – but with some recent problems (e.g., Enron)
  • If DON were a Fortune 500 Company, we would be #5, just above General Electric
  • DoD is the most significant Cabinet-level Department without an acceptable audit opinion
  • We apply rigor and discipline to operational missions (e.g., nuclear power, flight safety, etc.). Why not be as thoughtful, methodical, and accurate in financial management?
slide4

DON Financial Improvement Program

Human Resources

Materials

Mgmt

Human Resources

Supply Mgmt

People

(NSPS)

Processes

(Lean Six Sigma)

Supply Management

Enterprise Transition Plan

Program Management

Materials Management

Program Mgmt

Internal Controls

(MICP/A-123)

Systems

(Navy ERP)

Financial Management

Financial

Mgmt

Data/Stds

(SFIS)

Systems

(FAM)

Business process transformation recognizes the need for an enterprise-wide, integrated effort, aligning DON with the President’s Management Agenda, DoD Business Transformation, and Congressional intent.

DoD Business Enterprise Architecture

(DoD Financial Improvement and Audit Readiness (FIAR))

Current Environment

(Stove-piped)

DON Business Transformation

Future Environment

(Integrated)

slide5
The Department’s Business Transformation Program will continually mature as DoD’s Enterprise Transition Plan is executed.

DON Business Transformation Council Oversight

Internal Controls

As-Is Environment

Existing Processes

Discovery & Correction

Non-standard Controls

Legacy Systems

Audit Disclaimers

Transition Plan

Business Process

Transformation

“To-Be” Environment

Best Practices

A-123 Certified Controls

N-ERP

BTA/BEA

Unqualified Audits Opinions

slide6

To summarize, DON’s Financial Improvement Program (DON FIP) integrates several initiatives advancing business processes, systems, and people.

Key Success Factors:

  • Business rules and documentation
  • Sound systems environment
  • Ready access to audit trails and audit evidence
  • A paradigm shift – management takes ownership of the financial integrity of its processes
  • Human Capital Processes supported by a performance-based culture
  • Implementation, testing, and certification of Internal Controls over Financial Reporting (required by OMB A-123, Appendix A)
slide7

Audit

Discovery & Correction

Assertion

Assessment

Validation

The methodical trail to an audit opinion prescribed by the FIAR process incorporates continual testing of controls, as A-123 Appendix A calls for. Focus Areas are at different stages along the audit continuum; Investments and Debt are the Focus Areas most advanced. FIAR/A-123/FIP are all inter-related.

FIAR

FlowchartRisksControls

Test Controls

StatementofAssurance

Appendix A

Real Property

Military Equipment

Accounts Payable

Accounts Receivable

Inventory and OM&S

Environmental Liabilities

FECA Liability

Fund Balance with Treasury

Appropriations Received

Investments

Debt

FIP Focus Areas

don fip validation approach aligns with a 123 financial reporting requirements

DON Processes Established by Authoritative Guidance

Risk/Control Point

Analyze Risks

Assess Controls

Document Findings

=

Corrective Action

Process Improve-ment & Standard-ization

=

DON FIP Validation Approach Aligns with A-123 Financial Reporting Requirements

Continuous Monitoring

A-123 Certification in SOA / Audit Readiness

slide9

To conclude: Internal Controls Over Financial Reporting (A-123, Appendix A) involves all business managers-- not just financial managers.

Keys to DoD/DON Success:

  • Awareness
  • Relevance
  • Execution