Commonwealth of Virginia Department of Accounts Agency Risk Management and Internal Control Standards (ARMICS) An Implementation Example
Department of Productivity Enhancement Example: The approach of a fictitious agency of the Commonwealth of Virginia to implement ARMICS cost effectively, with minimal disruption, by the deadline. July 25, 2007
The Agency: Department of Productivity Enhancement 125 Employees (MEL) Mgt Team – 15 Program Ops – 110 -- Agency Head -- 80 Staff Analysts -- Deputy -- 20 Sr (Lead) Analysts -- OPS Chief – 2 -- 10 Vacancies -- Planner -- VITA Liaison -- Research Analyst -- HRO – 2 -- Accounting – 5 -- Procurement – 1
Accounting Division Five Employees • Fiscal Director • Accounting Manager • Staff Accountant • Two Transaction Processors
Agency Mission • Examine agency operations • Recommend improvements
Operations Organization Two Operations Chiefs Ten field teams each 4 Staff Analysts + 1 Senior Analyst (Leader) = 1 Team 10 Vacancies Roughly 2 Teams per Secretariat
Operations • All Operations Staff have College Degrees • Each one is issued a VITA – NG Laptop • Used for Word Processing (Reporting), Some Excel and Access (Analysis) • 40% Travel to Agency field operations and HQ • Economist Contract for $250K/Year • Misc. supply expenditures
Fiscal Office Attributes • Use the Payroll Service Bureau (PSB) • Key Directly into CARS • No Federal Grants • Payroll is largest expense
Background • ARMICS Steering Committee (appointed by Agency Head) • Agency Head, Danny Murtaugh • Fiscal Director, Dave Cash • Chief Deputy, Roberto Clemente’ • OPS Chief, Wilbur Stargell • OPS Team Leader, Al Oliver
The Plan The steering team has just emerged from a two day ARMICS Retreat with the following implementation plan . . . • OPS team leader, Richie Hebner, an expert in MS Access will prepare a Database to accept questionnaire responses. Due July 31, 2007. • Richie’s team will be responsible for adding information to the database as it is received.
The Plan • Procurement Manager, Ramon Hernandez, will set-up a mandatory staff meeting on August 1, 2007, to kick-off the ARMICS Project. • Mr. Murtaugh will lead the mandatory staff meeting (8-1-07) to set the tone for the project. • The Steering Committee will meet every other week to assess the progress of the project.
The Plan • Jose’ Pagan, a team leader, will gather general information about the agency to be used by the evaluation teams. Due July 31, 2007 • The Corrective Action Plan (CAP) Team will meet every Friday to assess reports from the evaluation teams. • At the end of the project, the results will be shared in an agency-wide staff meeting. Plans to implement corrective actions will also be discussed.
The Plan • Questionnaires will be distributed by E-mail to applicable employees on a staggered basis to distribute the workloads. A secure collection point will be created and operational by July 31, 2007. Mr. Hernandez will be responsible for creating a collection point.
The Plan • Corrective Action Plan Team • Chief Deputy, Roberto Clemente’ • *Operations Chief, Gene Alley • Planner, Bob Robertson • OPS Team Leader, Doc Ellis • OPS Team Leader, Steve Blass
The Plan • Evaluation Team Assignments • Control Environment (CE) • *Chief Deputy, Clemente • Procurement Mgr., Hernandez • OPS Team Leader, Luke Walker • OPS Team Leader, Bob Moose
The Plan • Evaluation Team Assignments • Risk Assessment (RA) • *Research Analyst, Manny Sanguillen • OPS Team Leader, Bruce Kison
The Plan • Evaluation Team Assignments • Control Activities (CA) • *VITA Liaison, Rennie Stennett • Fiscal Director, Dave Cash • OPS Team Leader, Richie Hebner
The Plan • Evaluation Team Assignments • Information and Communications (IC) • *HRO Head, Bill Mazeroski • Chief Deputy, Clemente • OPS Team Leader, Mudcat Grant
The Plan • Evaluation Team Assignments • Monitoring (M) • *Research Analyst, Sanguillen • OPS Team Leader, Bob Veale • OPS Chief, Stargell
The Plan • Evaluation Team Assignments • Stage 2 • *Fiscal Director, Dave Cash • Accounting Mgr., Gene Clines • Staff Accountant, Vic Davalillo • OPS Team Leader, Dave Guisti • OPS Team Leader, Nelson Briles
Rollout Schedule Team Out Return CE 8-13 8-24 RA 8-6 8-10 CA 8-9 8-17 IC 8-16 8-21 M 8-21 8-28
Preparation • Steering Committee will provide the training on August 1,2007. • All key players are required to read the ARMICS Directive and implementation Manual. • Each Team must have all revisions to their questionnaires sent to Mr. Hebner a minimum of two days before their rollout date. • August 1, 2007, meeting is set for the Ashland Cultural Arts Center, all day, working lunch provided.
Day One – August 1, 2007 • Mr. Murtaugh’s key points • Late start - Apologizes • Critical to State Government • Concentrated effort for a short period of time • Extreme cooperation and honesty • If unsure – ASK !!!! • Timing is everything under tight schedules • Need to cover for each other as necessary • Weekly updates, direction, and encouragement are provided by Mr. Murtaugh by e-mail and walk-arounds
Control Environment (CE) • Toughest schedule • All Employees (125) • Agency organization and structure concerns because of increased travel and field work • Travel is equitably distributed among staff and team leaders • Team rotation is adequate to keep job duties fresh and minimize over familiarity with agencies. • Team assignments are fair, equitable, and follow the agency policy. • The agency team assignment policy is reasonable. • Others
CE Progress • 8-10-07 -- Questionnaire revisions completed and sent to Mr. Hebner • 8-13-07 -- Mr. Hebner’s group revises the database and distributes the questionnaire to all employees • 8-13 thru 8-24 -- questionnaires received are keyed to the DB each day • 8-28 and 8-30 -- Team meetings to analyze results
CE Team Report: 9-5-07 • Summary: overall things are well controlled • Weaknesses: • Responses indicate displeasure with assignments and show concerns of favoritism regarding travel. • No written code of ethics • Others • Strengths: • Experienced management team
CAP Review: 9-7-07 • Accepted recommendations for CAP for all noted weaknesses except for personnel assignments • Requested more information on agency policy for assigning personnel and travel rotations
CE Testing 9-7-07 • Completed designing tests to determine if internal controls are functioning as intended for items in survey with proper controls in place • Development of tests took two days with the whole team working on them
CE Test Examples • Purpose: Determine if employees know how to react ethically in a given situation. • Test: Develop 20 brief situational examples and have 30 employees provide answers to these situations. • Sample Questions: An employee takes office supplies for use at home because they occasionally do some work in the evening on their own time without compensation (FLSA Exempt). • An employee does not bother to inform their supervisor about a small side business that he and his wife run out of their basement because it is unrelated to his job at work.
CE Test Examples - Continued • Two employees conducting a field examination out of town for a week, take an hour exercise break in addition to lunch because that is what the people they are reviewing do as part of their routine. • State and agency travel policies do not allow reimbursement for taxi tips while on travel status. All agency employees think this is unfair and include the tip in with the taxi fare since the cabbie provides them with a blank receipt. • Others
CE Test examples - continued • Purpose: Determine the frequency of management communications to employees regarding ethics. • Test: Do an electronic search on documents containing the word “ethics” in the agency “chron file” or in the files of the Agency Head (Murtaugh) or the HRO Director, Mazeroski.
CE Test examples - continued • Purpose: To determine if employees are evaluated (Annual Performance Evaluation) based on their ethical behavior in addition to their output criteria. • Test: Review a random sample of 30 EWPs and employee evaluations for the last review cycle and determine if ethical concepts are included in the EWP or the evaluation. • Others….
CE Test Results • No employee scored above a 15 (out of 20 questions) on the “Ethics exam” • Average score was 9.8. • Ethical training and guidance is needed in the agency. • No ethics communications from either the Agency Head or the HR Director in the last year. (Initial ratings for this in Questionnaire were 3 or 4) • None of the 30 EWPs contained requirements to evaluate ethical behavior. • 2 evaluations mentioned ethical activities of the employee • One positive and the other negative.
CE Processing • Testing completed 9-18-07 • CAP recommendations from testing submitted to CAP Team on 9-19-07 • Request for additional info from original CAP submitted on 9-16-07 • All CE CAP items approved with revisions and submitted to Steering Committee 9-21-07 • All documentation compiled, organized, and submitted to steering committee on 9-25-07 • Reviewed and approved by Steering Committee 9-28-07
Weaknesses and CAP • General ethical communication and guidance is weak at best. • No code of ethics • No communications from the top • Weak scores on agency ethics exam
Weaknesses and CAP • Corrective Action Plan (Ethics Guidance) • 12-31-07 Interim Code of Ethics based on best practices • 3-31-08 Final Code of Ethics based on Agency needs produced at Annual Strategic Planning Session in February • Monthly Ethics Question included in Agency newsletter created by HRO – • Analysis of answers included in following edition
Weaknesses and CAP • Corrective Action Plan (Ethics Guidance) • Initial direction provided by Agency Head Murtaugh at all-staff meeting to be held in December 2007 • Ethics memos to be distributed each Quarter from Murtaugh beginning January 2008 • Create new ethics exam and retest in September 2008
Weaknesses and CAP • Ethical behavior is not encouraged by the annual evaluation process • No ethical evaluation criteria in the EWPs tested • Corrective Action Plan • Upcoming EWPs for the new evaluation year will include at least one general and one specific ethical criteria
Weaknesses and CAP • There is no formal job rotation and assignment policy. As a result the following can occur: • Burnout from excessive travel • Complacency from becoming too familiar with customer operations • Inter-unit squabbling over choice assignments (low Morale) • High turnover – vacancies – overtime – increased costs to continually hire staff
Weaknesses and CAP Corrective Action Plan (Job Rotation) • Create a task force to create job rotation policy by June 30, 2008 • Research best practices, • Gather input from employees • Devise an implementation plan to be effective September 30, 2008
Risk Assessment (RA) • Short Section • Management team and OPS Team Leaders only • Addresses the use of Risk Assessment as a management tool and SWOT for evaluating Strategic Objectives • No variations to questionnaire • Will change dramatically during the 2nd year of implementation • Questionnaire will refer to the ARMICS process (Completed) and not the current risk assessment process
RA Progress • 8-02-07 Questionnaire sent to Mr. Hebner – no revisions • 8-06-07 Mr. Hebner’s group revises the database and distributes the questionnaire to all employees • 8-06 thru 8-10 questionnaires received are keyed to the DB each day • 8-13 and 8-15 Team meetings to analyze results
RA Team Report: 8-16-07 • Summary: Overall things are well controlled • Weaknesses: • Management does not routinely use the evaluation of risk in making business decisions • Strengths: • Experienced management team
CAP Review: 8-17-07 • Accepted recommendations for CAP • Forwarded CAP items to Steering Committee
RA Testing 8-(20 to 21)-07 • Completed designing tests to determine if internal controls are functioning as intended for items in survey with proper controls in place
RA Test Examples • Purpose: Determine if the agency addresses risk as an entity as well as for individual functions. • Test: Review Agency’s last strategic planning meeting (minutes, agenda, output, etc.) and determine if: • Risks to the agency as a whole were addressed • A SWOT analysis was completed for strategic objectives
RA Test examples - continued • Purpose: Determine if opportunities and long range solutions are considered to mitigate risks as well as short range solutions • Test: Select the last two issues in which risk was evaluated to see if long range opportunities were considered along with short term answers to the risk problem.
RA Test Results • A risk analysis was performed to accompany the DPB annual budget submission • No formal risk assessment process was used to address situations or risks encountered during the year • The testing of recent projects confirmed the lack of using risk assessment as a management tool to address agency issues
RA Processing • Testing completed 8-23-07 • CAP recommendations from testing submitted to CAP Team on 8-24-07 • All RA CAP items approved and submitted to Steering Committee 8-24-07 • All documentation compiled, organized, and submitted to steering committee on 8-31-07 • Reviewed and approved by Steering Committee 9-5-07
Weaknesses and CAP • Risk Assessment is not used as a tool to manage agency operations and projects • Corrective Action Plan • Require all agency plans, projects, and operations to include risk management as part of their routine functions • Carefully re-evaluate this section after ARMICS begins its second year to determine if the use of ARMICS has improved the agency’s perspective on risk analysis as a management tool