Rewrite Circular A-123, Internal Control Systems

1. Make OMB Circular A-123 a succinct document that defines policy for
management controls.

Rewrite OMB Circular A-123, Internal Control Systems, to be a
succinct document that defines the policy for establishing and reviewing
management controls. (2)

OMB should rewrite--not revise--its Circular A-123 and should
incorporate the following concepts:

--- Emphasize that management controls are more than financially based.

--- Emphasize reliance on line managers to incorporate management
controls into their regular operating practices and strategic plans.

--- Emphasize managers' accountability for results. Are the management
controls appropriate and adequate? Do they help attain the desired
results of programs? Are customer needs being met? Are resources and
assets being used most efficiently?

--- Encourage the use of a cross-functional (program and staff)
management council at all executive branch agencies. Include in its
responsibilities the review of management controls in terms of operating
practices as a whole and in the context of strategic and quality
management. These management councils should have a membership that
represents both line and staff management and should include access to
an information technology specialist(s).(13)

--- Promote a role for auditors (IGs, GAO, FMFIA staffs) that is
secondary to but supportive of the line managers. Auditors should review
the agencies' processes for reviewing and implementing management
controls.

--- Promote FMFIA as primarily a management tool to be used within
agencies--for identifying management control concerns and initiating
corrective actions--and not solely as an external reporting process.

--- Encourage agencies to include management information systems experts
in the development of management control systems.

--- Promote the use of the FMFIA review process as an early warning
tool(14) to identify problems or "management control improvement areas"
long before they create wasteful practices.

This new A-123 will set the direction for management controls and their
review and allow agencies to develop the flexibility to develop their
own system for management controls. Given the existence of GAO's
"Standards for Internal Controls in the Federal Government," the OMB
circular should be policy oriented.

FMFIA--recast as a tool for line managers to ensure that adequate and
reasonable management controls are in place--should deemphasize the role
of outside auditors. OMB should convey to agencies that the FMFIA annual
report is not an end in itself--it is a tool to identify management
concerns and bring them to the attention of high-level management.