# Presentation: 676634

## Department of Commerce

**Department of Commerce**
**Approach to Implementing A-123**
**A-123 Presentation**
**May 23, 2006**
**Lisa Casias**
**Deputy CFO and **
**and Director for Financial Management**

## Agenda

**Agenda**

**Background and Challenges**

**A-123 Implementation Approach**

**DOC Timeline**

**Benefits **

## Background

- DOC is comprised of 13 diverse bureaus (all but 3 bureaus are on one financial system).
- We have approximately 34,000 employees.
- In 2005, total assets were approximately $12.7 billion.
- In 2005, DOC received an unqualified opinion for the 7th consecutive year.
- Since 1st quarter, FY 2005, DOC has maintained a green status rating on the Financial Management Scorecard under the President’s Management Agenda.

## Two reportable conditions, Construction in Progress (new) and IT Security.
Corrective action plans are required on all findings – including management letter.
CFOs are required to certify to financial statements and compilation procedures.
Monthly CFO and Finance Officer meetings are held to discuss financial management issues.
Review of business processes to standardize recording of transactions among bureaus on DOC system.
Frequent consultation with the OIG.  

- Corrective action plans are required on all findings – including management letter.
- CFOs are required to certify to financial statements and compilation procedures.
- Monthly CFO and Finance Officer meetings are held to discuss financial management issues.
- Review of business processes to standardize recording of transactions among bureaus on DOC system.
- Frequent consultation with the OIG.

**Background (continued)**

## Resources
Leveraging existing bureau and Department resources
no contract assistance to date (with the exception of PTO)
Working with the CIO on IT Controls.  Testing of IT internal controls is being integrated with internal control testing required by FISMA.  However, this testing doesn’t reach the application controls.
Buy-in/Understanding
Materiality  
Communication/Training
Storage and Maintenance of Documentation
Timeframe to Meet Requirements 

- Leveraging existing bureau and Department resources
- no contract assistance to date (with the exception of PTO)
- Working with the CIO on IT Controls.  Testing of IT internal controls is being integrated with internal control testing required by FISMA.  However, this testing doesn’t reach the application controls.
**Buy-in/Understanding**
- Materiality
- Communication/Training
**Storage and Maintenance of Documentation**
**Timeframe to Meet Requirements **

- Challenges

## Agenda

**Agenda**

**Background and Challenges**

**A-123 Implementation Approach**

**DOC Timeline**

**Benefits**

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Organizational Structure | June 2005 - CFO appointed Senior Management Council (SMC)
Provides oversight for A-123 process
Composed of all bureau CFOs, CIO, and heads of Human Resources, Acquisition Management, Budget and Administrative Services.
Co-chaired by Deputy CFO and Director, Office of Management and Organization
Meets monthly
October 2005 – SMC appointed Senior Assessment Team (SAT)
Conducts day-to-day A-123 activities, including review, documentation, and testing of internal controls.
Composed of representative of bureaus and offices that have a material impact on DOC’s financial reporting. |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Scope of financial reporting | Balance Sheet
Statement of Net Cost
Statement of Changes in Net Position
Statement of Budgetary Resources
Accompanying Financial Statement Notes
Budgetary Execution Reports
    Reports have a material effect on significant spending, budgetary, or other financial decisions, and in some instances, are used to monitor specific activities    
Major programs, e.g. Decennial Census
     These programs significantly impact budget, have a high degree of risk, or are of particular interest to management. |
| Materiality | Planning Materiality – 3% total assets
Design Materiality – 1/3 planning materiality
Assessment Materiality – 75% of design materiality

    Used GAO/PCIE Financial Audit Manual as a guide. |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Identification of Key Processes | Budget Execution
Inventory
Purchasing
Revenues
Payroll and Employee Benefits
PP&E Spending and Maintenance
Financial Reporting (including period-end reporting)
Treasury Management
Risk Management
Information Systems
Grants Management
Loans
    Processes significantly impact the Department’s financial management and reporting, and support the material balances on the financial reports.  Processes defined by financial statements, auditor-provided cycle memoranda and significant control summaries, and other pertinent information. |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Identification of Key Controls
 | SAT divided into sub-teams according to process area.
Sub-teams documented control objectives, risks, key controls and risk assessments for key processes and sub-processes on standardized template.
OFM coordinated SAT review of all draft templates and sub-teams coordinated resolution of issues.
Outstanding issues were resolved by OFM, in consultation with sub-teams. |
| Documentation | Processes and controls in place
Bureaus responsible for documenting processes
DOC did not prescribe a documentation standard this year
Assessment process and methodology management
OFM developing and maintaining documentation.   |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Testing Approach and Plan | Planning:
Testing Team, a sub-team of the SAT, includes representatives from several small and large Department bureaus and the Office of Financial Management
During the 2nd quarter of FY 2006, Team met on a regular basis to develop testing approach and plan.
Test Approach
Decentralized testing at the bureau level
Bureaus who cross-service provide testing services for customer bureaus
Planning, monitoring, reviewing and evaluation of test work coordinated at the Departmental level through the SAT and SMC.
 |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Testing Approach and Plan (continued) | Test Approach (continued)
Segregation of Duties
Bureau staff performing test work independent of bureau staff performing operational functions AND  bureau staff reviewing quality and accuracy of test work.
SAT and SMC member review test work of bureaus other than their own bureau.
Documentation
Test team developed standard work paper templates and instructions for use by all testers.
Testers will document test procedures followed, rational for departures from Department-wide standardized test plan, evidence obtained through the testing process and conclusions reached.
 |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Testing Approach and Plan (continued) | Test Approach (continued)
Controlling and Monitoring:
Formalized communication protocol between testers, SAT reviewers and SMC in place.
Test plan controlled and monitored at the Department level.
Sampling approach developed at Department level.  Each bureau will use uniform sample sizes and sampling techniques.
SAT reviewers will examine the processes across bureaus to ensure consistency in application of judgment to and quality of testing.

 |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Testing Approach and Plan (continued) | Test Plan
DOC testing key controls on all 12 processes.  Testing procedures, including control type, test method, sampling, and audit test have been developed for all key controls.
The processes associated with each material line item being tested at material bureaus.  The SAT documented the crosswalk between the key processes, each material financial reporting line item they support, and the bureaus that are material to each line item.  
Testing started during the 3rd quarter; will be completed by the middle of the 4th quarter. |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Concluding, Reporting, and Correcting Deficiencies and Weaknesses | Test results will be reviewed by the SAT and SMC for deficiencies and weaknesses
Determinations made regarding extent of any deficiencies found, i.e., internal control deficiency, reportable condition, material weakness
Corrective Actions Plans developed and implemented.
Reporting and identification of deficiencies and weaknesses completed during 4th quarter.  SMC will recommend level of assurance the Secretary should provide on internal control over financial reporting. |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Consultation with IG
 | Meet with OIG staff periodically to discuss DOC approach and provide updates on progress.
Provide Implementation Plan, Process Templates, and Testing documentation that describe approach. |
| Integrate and Coordinate with Other Control-Related Activities | Testing of internal controls will be integrated with internal control testing required by FISMA.
Department to provide additional guidance to bureaus for an integrated FMFIA review process.  
Leverage completed and ongoing IG and GAO audit activities at the Department.  

 |

## A-123 Implementation Approach

| Requirement | DOC Approach |
| --- | --- |
| Communication | SES Career Development Program team is developing a Department-wide A-123 communication strategy and plan.  
Department senior managers communicate A-123 requirements at quarterly management updates, briefings and presentations.  
Bureaus routinely discuss A-123 activities among managers and staff.
PMA initiatives included in SES Performance Plans.  One bureau includes a specific element that states:
    "Completes all actions necessary to eliminate                  material weaknesses and support achievement of a unqualified bureau audit."  |

## Agenda

**Agenda**

**Background and Challenges**

**A-123 Implementation Approach**

**DOC Timeline**

**Benefits**

## DOC Timeline

**DOC Timeline**

**Assessment Phases**
**  **
**Project Initiation**
-  ***Appoint SMC (6/05)***
***  ******Identify FS***
***  ******Prepare Materiality Analysis***
***  ******Appoint SAT***
**Planning Phase**
* ****Finalize Materiality***
***  ******Finalize Processes/Sub-Processes***
***  ******Document Key Controls***
***  ******Document Processes***
***  ******Integrate Control Activities***
***  ******Develop Communications Plan***
***  ******Develop Test Plan ***
**Testing Phase**
-  ***Testing Key Controls***
***  ******Identify Deficiencies & Weaknesses***
**Evaluation Phase**
-   ***SMC and SAT review test results***
***  ******Develop CAPs***
**Reporting Phase**
-  ***Assurance Statement in PAR (as of***
***    ******June 30 – PAR issued 11/15/06)*****  **

**FY 2005**

**FY 2006**

**Qtr. 4**

**Qtr.1**

**Qtr. 2**

**Qtr. 3**

**Qtr. 4**

## Agenda

**Agenda**

**Background and Challenges**

**A-123 Implementation Approach**

**DOC Timeline**

**Benefits **

## 
Formalized the process and reporting on assurance of internal controls.  

Assists in enforcing compliance by increasing visibility.  

Provides positive opportunity to work with bureaus – working together to get the job done.
Transfer of knowledge among bureaus.
A-123 Inter-agency workgroup.

- Formalized the process and reporting on assurance of internal controls.
- Assists in enforcing compliance by increasing visibility.
- Provides positive opportunity to work with bureaus – working together to get the job done.
- Transfer of knowledge among bureaus.
- A-123 Inter-agency workgroup.

- Benefits