* Updates office symbol due to reorganization (title page, paras 1-8d, and D-6).
* Updates directorate title due to office reorganization (Director, Management Services and Director, Audit Readiness are now combined — new title is Director, Accountability and Audit Readiness) (para 1-7).
* Updates responsibilities of the Administrative Assistant to the Secretary of the Army (para 1-9).
* Adds responsibilities for the certification of internal control over financial systems (paras 1-13 and 1-20).
* Requires an annual statement of assurance on internal control over nonfinancial operations, financial reporting, and financial systems (para 2-2).
* Encourages the functional proponents to use the revision process described in AR 25-30 to add new or to update existing evaluations ( para 2-5 d (1)).
* Changes the requirement for certification on DA Form 11-2 (Internal Control Evaluation Certification) ( para 2-5 e ).
* Adds internal control over financial systems requirement (para 2-9a).
* Clarifies record retention requirements (para 2-10c(4)).
* Removes the requirement for internal control responsibilities for the National Security Personnel System (rescinded para 2-11b(3)).
* Updates internal control reporting categories (app C).
* Adds definitions: internal control over financial reporting, internal control over financial systems, and internal control over nonfinancial operations (glossary, sec II).
* Adds policy on internal control over financial systems (throughout).
* Introduces new terminology, internal control over nonfinancial operations as outlined in DODI 5010.40 (throughout).
* Makes additional rapid action revision changes (throughout).
This regulation prescribes policies and responsibilities for the Army Managers' Internal Control Program (MICP). The provisions of this regulation apply to all Army organizations and programs.
Required and related publications and prescribed and referenced forms are listed in appendix A .
Abbreviations and special terms used in this regulation are explained in the glossary .
See section II for responsibilities.
a. The Army's MICP meets the requirements of the Accounting and Auditing Procedures Act of 1950, as amended by the Federal Managers' Financial Integrity Act (FMFIA) of 1982, P.L. 97-255 (codified at Title 31, United States Code, Section 3512 (31 USC 3512)). The Accounting and Auditing Procedures Act of 1950 is implemented within the executive branch by the Office of Management and Budget (OMB) Circular A-123, and within DOD by DODI 5010.40 .
b. The FMFIA requires the head of each executive agency to —
(1) Establish internal controls to provide reasonable assurance that obligations and costs are in compliance with applicable laws; all assets are safeguarded against waste, loss, unauthorized use, or misappropriation; revenues and expenditures are properly recorded and accounted for; and programs are efficiently and effectively carried out according to the applicable law and management policy.
(2) Report annually to the President and Congress on whether these internal controls comply with the requirements of the FMFIA, including —
(a) Identifying any material weaknesses in these internal controls, along with plans for their correction.
(b) Reporting on whether accounting systems comply with the principles, standards, and related requirements prescribed by the Comptroller General of the United States, including deficiencies and plans for their correction.
The SA will sign and submit an annual statement of assurance to the Secretary of Defense on the status of the Army's internal controls over nonfinancial operations (ICONO), as required by OMB Circular A-123 and include separate specific statements on internal control over financial reporting (ICOFR), as required by OMB Circular A-123, Appendix A, and internal control over financial systems (ICOFS), as required by OMB Circular A-127.
The ASA (FM&C) has delegated responsibility for implementing the Army MICP to the Deputy, ASA (FM&C) (Financial Operations). The Deputy, ASA (FM&C) (Financial Operations) will ensure that the Director, Accountability and Audit Readiness Directorate will —
a. Formulate Army policy for implementing the FMFIA and issue administrative guidance and instructions.
b. Analyze documents from Congress, the U.S. Government Accountability Office (GAO), OMB, the Comptroller General, the Office of the Secretary of Defense, and others related to the FMFIA to identify and effect needed changes to the Army MICP.
c. Advise and represent the ASA (FM&C) on matters involving the Army MICP.
d. Provide guidance and technical assistance directly to internal control administrators (ICAs) at HQDA, Army commands (ACOMs), Army service component commands (ASCCs), and direct reporting units (DRUs).
e. Prepare and staff the SA's annual statement of assurance on ICONO, including ICOFR and ICOFS, and provide periodic updates, as required, on previously reported material weaknesses.
f. Coordinate with the U.S. Army Audit Agency (USAAA) and HQDA functional proponents on identifying internal control weaknesses that merit reporting as material weaknesses in the SA's annual statement of assurance.
g. Develop internal control training materials for use by reporting organizations and their assessable units; HQDA functional proponents; and Army schools that provide executive development and management training; and audit, inspection, and other organizations whose personnel assess the effectiveness of internal controls.
h. Develop and maintain a tracking system to ensure that material weaknesses reported in the SA's annual statement of assurance are corrected in a timely manner. Feedback will be provided within 30 days to reporting organizations on the material weaknesses submitted to ASA (FM&C) that require action by HQDA and were not reported in the SA's annual statement of assurance.
i. Develop and staff the Army's position on reports by GAO, USAAA, DOD Inspector General (DODIG), and similar organizations on the overall Army MICP.
j. Develop and maintain a current inventory of functional areas with key internal control evaluations on the ASA (FM&C) Web site.
k. Coordinate with the USAAA on the annual audit of the MICP (see para 1-10 g ).
l. Coordinate and monitor HQDA functional proponents' progress toward developing and maintaining policies and regulations that include effective internal controls.
m. Develop and maintain an inventory of Army assessable units based on annual input from HQDA functional proponents, ACOMs, ASCCs, and DRUs.
n. Issue guidance to HQDA functional proponents on implementing ICOFR, to include completing all ICOFR deliverables on time.
o. Advise and represent the ASA (FM&C) on matters involving ICOFR.
p. Provide advice and technical guidance to the ACOMs, ASCCs, and DRUs in developing process narratives, process flows, and conducting risk assessments and testing for ICOFR.
q. Submit OMB Circular A-123, Appendix A deliverables required by the Office of the Secretary of Defense on time.
r. Prepare the annual statement of assurance on ICOFR for inclusion into the SA's annual statement of assurance.
s. Ensure that ICOFR material weaknesses include corrective action plans and update at least annually.
t. Respond to auditor requests during audit or examination of ICOFR information.
The HQDA functional proponents, for their areas of functional responsibility, will —
a. Develop and maintain policies and regulations that include effective internal controls.
b. Determine, through risk assessment, the key internal controls. Develop an internal control evaluation or identify an alternative method to test those controls and include the prescribed test method in the applicable Army regulation.
c. Ensure that key internal controls in regulations are reviewed and evaluations updated, as needed, and that ASA (FM&C) is notified to update the inventory of evaluations.
d. Review material internal control weaknesses submitted by ACOMs, ASCCs, DRUs, and HQDA functional proponents to determine if they need additional coordination, to assess their materiality, and to provide written feedback according to the tasking memorandum. Send the feedback to the Assistant Secretary of the Army (Financial Management and Comptroller) (SAFM-FOA), 109 Army Pentagon, Washington, DC 20310-0109 and the reporting organization recommending that the material internal control weakness be —
(1) Returned to the reporting organization for monitoring and resolution at a lower level. The HQDA functional proponent will provide guidance and assistance, as required, to ensure that the weakness has been corrected.
(2) Accepted as an issue requiring action but not reported as an Army-level material weakness. The HQDA functional proponent will coordinate with ASA (FM&C), USAAA, the reporting organization, and other stakeholders, as required, to determine the appropriate corrective action.
(3) Adopted as a HQDA-level material weakness for inclusion in the SA's annual statement of assurance. The HQDA functional proponent will then develop a material weakness corrective action plan, in coordination with the reporting organization, and staff it with ASA (FM&C), and USAAA, and other stakeholders, as required. The corrective action plan should be developed within 30 days and must include achievable milestones that will ultimately result in a validated correction of the weakness.
e. Track the progress in correcting material weaknesses reported in the SA's annual statement of assurance and material weaknesses reported by the ACOMs, ASCCs, and DRUs and provide status updates when requested by ASA (FM&C).
f. Assist ASA (FM&C) in composing and reviewing the SA's annual statement of assurance to maintain effective quality control over the accuracy of information reported.
g. Assess and provide guidance and feedback to the reporting organizations on specific actions required at all levels to address and resolve reported material weaknesses in the proponent's functional area of responsibility (para 1-8 d ) upon completion of the assessment.
h. Issue ICOFR instructions requiring ACOMs, ASCCs, and DRUs to validate specific process flows, narratives, and internal controls for their operational areas.
The AASA will —
Implement and administer the Army's MICP for the Office
of the Administrative Assistant to the Secretary of the Army and for
Joint DOD activities supported by the AASA. In addition, the AASA
will provide guidance to the Army action agents to ensure Army executive
agent responsibilities are included in the appropriate functional
proponent, ACOM, ASCC, or DRU annual assurance statement.
Note. These elements will comply with paragraphs 1-8 and 1-13 of this regulation.
b. Coordinate with the Director of the Army staff to resolve issues of proponent responsibilities for ARs and material weaknesses.
c. Ensure that all Army regulations explicitly address MICP responsibilities and that evaluations of key internal controls are presented in the prescribed format under a separate appendix.
The Auditor General, in addition to responsibilities in paragraphs 1-8 and 1-13 will —
a. Provide technical advice, assistance, and consultation on internal controls to HQDA functional proponents, as necessary.
b. Evaluate, during the normal course of audits, the effectiveness of internal controls, the adequacy of internal control evaluations, and the adequacy of actions taken to correct material weaknesses.
c. Provide periodic reports to ASA (FM&C) summarizing internal control and systemic weaknesses identified in USAAA audits.
d. Identify proposed Army-level material weaknesses and provide the information to HQDA functional proponents, when requested by ASA (FM&C), for possible reporting in the SA's annual statement of assurance.
e. Conduct an annual attestation for the SA assessing implementation and adequacy of the MICP. Include in the attestation, the section related to ICOFR as prescribed by OMB Circular A-l23, Appendix A and DOD guidelines; and ICOFS as prescribed by OMB Circular A-127 and DOD guidelines.
f. Coordinate with ASA (FM&C) and submit annually to the DODIG a list of potential Army material weaknesses identified during audits, along with the Army position on these potential material weaknesses.
Coordinate with the ASA (FM&C) for review and audit
of the program to comply with OMB Circular A-123, Appendix A
and DOD guidelines.
Note. The USAAA will coordinate with command audit focal points and notify commands and activities of its planned audits according to current Army notification procedures to the greatest extent possible before the entrance conference or start of fieldwork (see AR 36-2 ).
The Inspector General, in addition to the responsibilities listed in paragraphs 1-8 and 1-13 will consider (during the normal course of inspections) internal controls when assessing of systemic issues and problems and will make appropriate recommendations.
A senior management council will be convened through special sessions of the senior level steering group (SLSG) and/or senior assessment team (SAT). Chaired by the ASA (FM&C) and representing all HQDA functional proponents, this council will meet (as needed) to provide advice on internal control matters, including identifying of internal control and systemic weaknesses that merit reporting in the SA's annual statement of assurance. The SLSG and/or SAT will serve as the senior team responsible for overseeing the OMB Circular A-123, Appendix A program. Reporting organizations are encouraged to establish senior management councils that function in a similar fashion. Before convening, a senior management council must meet the requirements of AR 15-1 .
The HQDA functional proponents, ACOMs, ASCCs, and DRUs are the primary reporting organizations in the Army MICP. The heads of these organizations are responsible for understanding and applying the GAO standards for internal control in the Federal Government and carrying out the MICP within their organizations and will —
a. Provide the leadership and support needed to promote an effective MICP and to ensure that internal controls are in place and operating effectively.
b. Designate a senior responsible official (SRO) to ensure that the MICP is effectively implemented within their organization.
c. Designate the assessable units within the organization and provide updates to ASA (FM&C), when directed.
d. In accordance with ICOFR annual guidance from the ASA (FM&C), oversee the preparation of all process flows and narratives for relevant processes and subprocesses and document internal controls in place.
e. Report significant deficiencies indicating the absence or ineffectiveness of internal controls and those weaknesses that warrant attention of HQDA for awareness or assistance in correcting. Potential material weaknesses should be reported to HQDA through command channels in a timely manner.
(1) The ASA (FM&C) will review the weakness reported and will forward it to the appropriate HQDA functional proponents for evaluation.
(2) The HQDA functional proponents will review internal control weaknesses submitted by ACOMs, ASCCs, and DRUs in accordance with paragraph 1-8 d to determine if they need additional coordination, assess their materiality, and provide written feedback to ASA (FM&C).
(3) The proposed HQDA material weakness and action plan will then be briefed to the SLSG and/or SAT for validation and approval. If approved, the material weakness and associated milestones will be included as part of the SA's annual statement of assurance. The ASA (FM&C) will then use the minutes of each SLSG meeting as a medium to communicate the status of reported weaknesses to ACOM, ASCC, and DRU commanders. Recommendations not resulting in a material weakness for the Army's annual statement of assurance, but requiring action from HQDA functional proponents, may be monitored by the SLSG to ensure timely resolution.
f. Implement corrective actions that may be made at the local level to correct the weaknesses. The reporting organization should then report the actions taken to enhance internal controls they believe to be significant accomplishments in Tab A of their annual statement of assurance.
g. Sign and submit an annual statement of assurance to ASA (FM&C) in compliance with annual guidance that accurately describes the status of internal controls within their organization, provides required certifications that internal controls related to ICONO, ICOFR, and, if applicable, ICOFS are in place and effective, and provides updated material weaknesses (in required format) that were reported throughout the year and the plans of corrective action. All reporting organizations are required to provide two certification statements, one for ICONO and one for ICOFR. In addition to providing certification statements for ICONO and ICOFR, organizations with systems that generate financial information impacting the Army financial statement are required to submit in accordance with DODI 5010.40 and OMB Circular A-127, a certified statement that provides unqualified assurance, qualified assurance, or no assurance of ICOFS, following annually published guidance for preparing annual statements of assurance.
Designated by the head of the reporting organization, the SRO has overall responsibility for ensuring the implementation of an effective MICP within that organization. In this regard, the SRO will —
a. Advise the head of the reporting organization on the implementation and status of the organization's MICP and the leadership and support needed to promote an effective MICP.
b. Designate an ICA to administer the MICP within the reporting organization and to serve as a focal point for all internal control matters.
c. Oversee the preparation of an annual statement of assurance that accurately describes the status of ICONO in the reporting organization to include, if applicable, ICOFR and ICOFS and fully discloses any internal control or systemic material weaknesses along with plans for their correction.
Designated by the head of the reporting organization, these commanders or managers of assessable units are responsible for understanding and applying the GAO standards for internal control in the Federal Government and will —
a. Designate an ICA to administer the MICP within the assessable unit and provide the leadership and support needed to ensure that the MICP is implemented and operating effectively.
b. Ensure that —
(1) Managers and ICAs are trained and understand their internal control responsibilities. Refresher training should be conducted, as necessary, to maintain currency with changes in operational environment, laws, policies, directives from higher headquarters, as well as any time that the organization has been impacted by turnover in managers, the ICA, or significant personnel rotations.
(2) Managers identify internal and external risks that may prevent their organizations from meeting their objectives. Managers also establish or enhance internal controls to mitigate identified risks and ensure their effectiveness. Tools for use in developing risk assessments are available at http://asafm.army.mil/offices/FO/IntControl.aspx?OfficeCode=1500 . Using locally devised methods and tools to fit organizational specific needs and requirements is encouraged.
(3) An internal control evaluation plan (ICEP), which describes how key internal controls in the assessable unit will be evaluated over a 5-year period, is established and maintained.
(4) Internal control evaluations are conducted according to the ICEP and the requirements of this regulation.
Required documentation on each completed internal control
evaluation is retained, subject to audit and/or inspection.
Note. Assessable unit managers (AUMs) or principal deputy certifies the results of required internal control evaluations.
c. Identify and report material weaknesses for the assessable unit consistent with guidance in paragraph 1-13 e .
d. Sign and submit to the next higher command level a feeder annual statement of assurance for the assessable unit.
In conjunction with program guidance issued by their ACOM, ASCC, or DRU, these commanders and State Adjutants General will —
a. Ensure that required internal control evaluations are conducted according to the governing ICEP.
b. Ensure that internal control responsibilities are explicitly covered in the performance agreements of commanders, managers, and ICAs down to and including the assessable unit level.
The ICA is a Government employee, military or HQDA civilian, designated by the SRO to administer the MICP within the reporting organization. The ICAs designated by AUMs below the reporting organization level should have similar duties. Contractors may not function as ICAs but may assist an ICA with most administrative tasks related to the preparation of the annual statement of assurance. Organizations are responsible for determining grade level, but the rank should be proportionate to the level of responsibility. The ICA will —
a. Advise the SRO or AUM on the implementation and status of the organization's MICP and keep commanders and managers informed on internal control matters.
b. Identify the organization's requirements for MICP training and arrange that training.
c. Develop and maintain an ICEP based on the applicable regulations and associated evaluations and any additional areas identified by commanders and AUMs.
d. Facilitate the process for identifying and reporting material weaknesses in accordance with paragraph 1-13 e of this regulation.
Prepare an annual statement of assurance for the signature
of the commander or principal deputy (reporting organization level)
and ensure that it is transmitted to ASA (FM&C) in compliance
with annual guidance. The annual statement of assurance must accurately
describe the status of internal controls within their organization,
provide required certifications that controls related to financial
and nonfinancial reporting are in place and effective, and provide
updated material weaknesses (in required format) reported throughout
Note. The ICA below the reporting organization level will similarly comply with paragraph 1-17e but will prepare a feeder annual statement of assurance for the assessable unit in accordance with instructions from higher headquarters that provides support for higher command level annual statements of assurance.
f. Ensure that the organization's internal review (IR) office, if there is one, is assigned to the command or staff element, reviews the organization's annual statement of assurance, and provides an assessment of its thoroughness and validity before it is approved and signed by the head of the organization.
g. Ensure that organizational material weaknesses are closely monitored until corrected and retain all required documentation supporting the annual statement of assurance and the correction of material weaknesses.
In their capacity as heads of IR, directors and/or chiefs offices will —
a. Provide technical advice, assistance, and consultation on internal controls to AUMs within their organizations, as necessary.
b. Evaluate, during the normal course of reviews, the effectiveness of internal controls, the adequacy of internal control evaluations, and actions taken to correct material weaknesses.
c. Identify and recommend any internal control or systemic weaknesses that may merit reporting as material weaknesses based on analysis of IR reports and external audit reports.
d. If aligned at the headquarters of a reporting organization or assessable unit, review the organization's annual statement of assurance and provide an assessment of its thoroughness and validity.
e. Notify the SRO and applicable AUMs and ICAs on the status of external inspection and audit findings and recommendations that may warrant reporting as a material weakness in the annual statement of assurance.
Until all Army finance and accounting operations and systems has been capitalized, the Director, Defense Finance and Accounting Service-Indianapolis Center is responsible for —
a. Determining key internal controls in finance and accounting and the appropriate evaluation methods and explicitly identifying the controls and methods in governing policy directives.
b. Providing overall guidance and direction to managers of Army accounting system for the evaluation, improvement, and reporting on Army accounting systems.
c. Conducting analysis and review of financial reporting processes, conducting risk assessments, modifying or implementing new internal controls to mitigate the changing environment, and preparing and submitting reports as required by ASA (FM&C) in adherence to OMB Circular A-123, Appendix A.
The Commanding General, USACE, in addition to the responsibilities listed in paragraphs 1-8 and 1-13 will submit a certification statement that provides unqualified assurance, qualified assurance, or no assurance of ICOFS of Corps of Engineers Financial Management System (CEFMS).
a. All commanders and managers have an inherent responsibility to establish and maintain effective internal controls, assess areas of risk, identify and correct weaknesses in those controls, and keep their superiors informed. The FMFIA and OMB Circular A-123, Appendix A codify this inherent responsibility.
b. Heads of reporting organizations and AUMs are responsible for understanding and applying the GAO standards for internal control in the Federal Government and for conducting internal control evaluations of key controls identified by HQDA functional proponents in applicable Army regulations.
c. Heads of reporting organizations and AUMs will give high priority to promptly correct material weaknesses and to effectively implement internal controls that —
(1) Are identified as key internal controls by HQDA functional proponents. (Source: proponent regulations and separate guidance).
(2) Pertain to the DOD high-risk areas identified by OMB. (Source: annual guidance).
(3) Pertain to any other high-risk areas identified by DOD or Army leadership. (Source: annual guidance).
(4) Pertain to areas of vulnerability they themselves have identified or have been identified by external entities such as USAAA or DODIG.
(5) Directly support the accomplishment of Army goals. (Source: Army Strategic Plan).
d. Heads of reporting organizations and AUMs must be forthright in reporting material weaknesses in key internal controls. The chain of command should encourage prompt and full disclosure of such problems and ensure that commanders and managers are not penalized for reporting material weaknesses.
e. Reporting organizations will be segmented into assessable units consisting of subordinate organizations headed by senior managers, preferably at the general staff or senior executive service level, but not lower than an O-6, GS-15, or equivalent. In exceptional cases where the grade structure does not support having an AUM at this level, the AUM will be the senior military or HQDA civilian functional manager.
f. Performance agreements for Army commanders, managers, and ICAs (with internal control responsibility down to and including assessable unit level) must include an explicit statement of this responsibility to permit appropriate evaluation (see para 2-11 ).
g. Under separate ICOFR instructions from the HQDA functional proponents, reporting organizations will validate specific process flows, narratives, and internal controls for their operational areas.
h. No Army activity or program is exempt from the requirements of the FMFIA and OMB Circular A-123, Appendix A. This includes all personnel assigned to Army organizations and reporting organizations for which the Army serves as the executive agent.
(1) The Army MICP is not intended, however, to limit or interfere with matters such as statutory development or interpretation, determination of program requirements, resource allocation, rule making, or other discretionary policy-making activities.
(2) For activities or functions that are contracted out, Army managers performing related functions that are inherently governmental in nature (for example, property accountability, contract administration, and quality assurance) must comply with the requirements of this regulation. If a contractor is expected to conduct internal control evaluations, the responsibility must be included as a contract requirement.
a. Internal control over nonfinancial operations.
(1) In accordance with DODI 5010.40 , the ASA (FM&C) is required to prepare for the signature of the SA an annual statement of assurance on ICONO. The ICONO annual statement of assurance must be based on an assessment strictly following the requirements of OMB Circular A-123, DOD annual guidance, and DA guidance.
(2) The ICONO statement of assurance must be based on the overall program and operational and administrative controls relevant to all mission essential functions throughout the Army.
b. Internal control over financial reporting.
(1) In accordance with DODI 5010.40, the ASA (FM&C) is required to prepare for the signature of the SA an annual statement of assurance on ICOFR, which includes the annual statement of assurances prepared by each Army financial reporting entity (general fund, Army working capital fund, and the civil works fund).
(2) The ICOFR annual statement of assurance must be based on an assessment strictly following the requirements of OMB Circular A-123, Appendix A; the Chief Financial Officers Council's Implementation Guide; DOD annual guidance; and DA annual guidance.
c. Internal control over financial systems.
(1) In accordance with DODI 5010.40, the ASA (FM&C) is required to prepare for the signature of the SA an annual statement of assurance on ICOFS. The ICOFS annual statement of assurance must be based on an assessment strictly following the requirements of OMB Circular A-127, Volume I, Chapter 3; DOD 7000.14-R ; DOD annual guidance; and DA guidance.
(2) The ICOFS statement of assurance must be based on integrated financial management systems (IFMS) compliance with Federal requirements. Nonconformance with Federal requirements constitutes a material weakness which will be reported in the statement of assurance with a corrective action plan and schedule for resolution.
a. Background. In the context of the FMFIA, "reasonable assurance" refers to a satisfactory level of management confidence that internal controls are adequate and operating as intended. Inherently a management judgment, reasonable assurance recognizes that acceptable levels of risk exist that cannot be avoided because the cost of absolute control would exceed the benefits derived.
b. Basis for reasonable assurance. Determining reasonable assurance is a subjective management judgment. The subjectivity of this judgment can be reduced significantly by considering the following:
(1) The degree to which all managers understand and adhere to the GAO standards for internal control in the Federal Government.
(2) The degree to which managers are held formally accountable for the effectiveness of their internal controls and are evaluated on their performance in this regard.
(3) The timeliness, adequacy, and results of internal control evaluations, including the correction of any internal control weaknesses detected.
(4) Assessments from other sources (for example, IR engagements, audits, inspections, and investigations), media coverage, and direct management reviews or assessments by senior officials.
(5) Supporting annual statements of assurance from subordinate commanders, managers, or AUMs.
c. Reporting. At each level, the annual determination of reasonable assurance is a management judgment, based on all available information on whether internal controls are operating as intended.
(1) The head of each reporting organization must submit an annual statement of assurance that provides two assessments of reasonable assurance that internal controls are in place and operating effectively; one for the ICONO, and one for ICOFR. In addition to providing certification statements for ICONO and ICOFR, the following reporting organizations must also provide a certification statement for ICOFS:
(a) Commanding General, USACE.
(b) Director, Financial Information Management, OASA (FM&C).
(c) Director, Audit Readiness, OASA (FM&C).
(2) The annual statement of assurance should be supported by clear indications that subordinate commanders and designated AUMs —
(a) Understand and adhere to the GAO standards for internal control in the Federal Government.
(b) Are formally held accountable for the effectiveness of their internal controls.
(c) Have evaluated key internal controls as required by applicable ICEPs.
(d) Have reported material weaknesses, if any, and have taken corrective action to resolve them.
(3) Where the annual statement of assurance provides a "qualified" annual statement of assurance, the area or areas in question should be specified and related to material weaknesses being reported.
a. General. The MICP does not attempt to evaluate internal controls for every requirement imposed on managers. It recognizes the principle that the cost of internal controls must not exceed the benefit derived. This constraint is captured in the concept of reasonable assurance. The Army accepts a certain amount of risk by requiring that AUMs concentrate on the adequacy of internal controls (as specified in the GAO standards for internal control in the Federal Government) and key internal controls (as specified by HQDA functional proponents). Key internal controls are those controls that are absolutely essential for ensuring that key processes operate as intended and that resources are safeguarded from fraud, waste, and misuse. Various factors might be considered in deciding which controls are the key controls, but the fundamental criterion is the severity of adverse impact should the control fail or fail to be used (that is, a key control is one whose failure would "break" or seriously impair the system). The determination of key internal controls must be based on recognition that properly conducted internal control evaluations impose a significant cost on Army managers and that these managers must be able to give priority attention to the true key controls.
b. Identification. By definition, all Army regulations are internal control documents that directly relate to one of the five GAO standards for internal control in the Federal Government (see app B ). Army regulations are a medium to communicate guidance, describe command and control relationships, leverage risk, and contribute to good management of Government resources and human capital. Headquarters, Department of the Army functional proponents must use their professional judgment to explicitly identify the key internal controls essential to their program and, where applicable, develop evaluations for those controls requiring testing and include them in an appendix to the governing Army regulation (see para 2-5 d ). The HQDA functional proponent's process for determining the key internal controls should be based on an analysis of acceptable risks conducted in coordination with USAAA to ensure a common baseline for audit purposes and executive-level approval of key controls to make sure that excessive coverage is avoided.
c. Revisions. After the initial determination of key internal controls, HQDA functional proponents must reevaluate this determination whenever major deficiencies have been identified (for example, by management reviews, IR engagements, audits, or inspections), when policies have been significantly revised, or when standard systems have been modified or replaced. Any standard internal control evaluations that have been affected must also be revised to ensure consistency in published guidance.
d. Supplementation. Field organizations may supplement internal controls identified by HQDA functional proponents. The key internal controls HQDA functional proponents identify are the minimum requirement for the internal control evaluation. Suggested changes to these key internal controls may be submitted directly to the HQDA functional proponent. Commanders and managers should require additional coverage in internal control evaluations to address command-unique or location-unique circumstances. Field organizations are encouraged to perform a risk assessment on these internal control processes when developing the annual ICEP.
a. General. An internal control evaluation is a detailed, systematic, and comprehensive examination of the key internal controls to determine whether they are in place, being used as intended, and effective in achieving their purpose including internal controls related to financial reporting (OMB Circular A-123, Appendix A) and IFMS (OMB Circular A-127). The evaluation must be based on the actual testing of these key internal controls using one of several methods (for example, direct observation, file and document analysis, sampling, or simulation). The evaluation of key internal controls must result in a specific determination of their effectiveness. Finally, the evaluation must be supported by documentation that clearly indicates who conducted the evaluation and when, what methods were used to test the key controls, evaluation results, what internal control deficiencies (if any) were detected, and what corrective actions were taken.
b. Requirement. Formal internal control evaluations of key internal controls must be conducted at least once every 5 years. Commanders and/or managers may require more frequent evaluations based on leadership emphasis, personnel turnover, audit and/or inspection findings, change in mission, and so on. The ASA (FM&C) will maintain a current inventory of functional areas on the ASA (FM&C) Web site of areas where HQDA functional proponents have identified key internal controls, as well as, information on the governing Army regulation and any suggested or required methods for conducting the evaluation.
c. Certification. The AUM's certification that a required internal control evaluation has been conducted will be documented on DA Form 11-2 (Internal Control Evaluation Certification). Certification, in block 7 of DA Form 11-2, will include a statement of the method used (evaluation or alternate method) and how compliance was tested; summary of results; list of any deficiencies identified (indicate no deficiencies if there were none); and what corrective actions have been taken, as well as what deficiencies are pending correction. The form is available in electronic media on the Army Publishing Agency Web site under forms.
d. Methods for evaluating internal controls. The HQDA functional proponents may identify an internal control evaluation process for use in evaluating key internal controls. All internal control evaluations will be conducted in one of two ways —
(1) Internal control evaluations. The HQDA functional proponent may develop an internal control evaluation and publish it as an appendix in the governing Army regulation for use by managers in evaluating key internal controls. Figure 2-1 is the format for an internal control evaluation. The evaluation identifies the key internal controls and provides managers with a tool to evaluate the effectiveness of these controls. Commanders and managers may use the functional proponent's published evaluation or, as an alternative, they can use an existing management review process of their own choosing, so long as the method chosen meets the basic requirements of an evaluation outlined in this paragraph. Functional proponents are encouraged to review their publications at a minimum of every 18 months and, as appropriate, revise the publication at least every 5 years (see AR 25-30 ). If your regulations do not identify key controls or need updated controls or evaluations, use the rapid action, priority, or administrative revision processes described in AR 25-30.
(2) Existing management review processes. In many areas, existing management review processes may meet, or can be modified to meet, the basic requirements of an internal control evaluation. Some of these processes are unique to a specific functional area, while others are more generic, such as the use of local inspector general, IR personnel, or the command review and analysis process. The HQDA functional proponents may suggest an existing management review process for evaluating key internal controls; or they may require the use of a specific functional management review process, so long as it is an existing Armywide process and one for which they are the functional proponent. The HQDA functional proponents must provide the necessary information as an appendix to the governing Army regulation. Figure 2-2 is the format for identifying key internal controls and evaluation processes if an evaluation is not provided. Unless the HQDA functional proponent requires the use of an existing Armywide functional management review process, commanders and managers are free to choose the method of evaluation.
DA Form 11-2
will be certified by the AUM in block 8
(2). Electronic signatures may be used.
The ICEP is the written plan for conducting required internal control evaluations within the assessable unit over a 5-year period. The ICEP need not be lengthy and any format may be used, so long as it covers the key internal controls identified by HQDA functional proponents and communicates clearly to subordinate managers what areas are to be evaluated, who will conduct the evaluation, and when. The ICEP may be developed at either the reporting organization or the assessable unit level. It may be structured by functional areas (for example, information security, maintenance of real property) or by major organizational components (Director of Logistics, Director of Contracting). It should list the governing ARs that identify key internal controls or method to be used for conducting the evaluation. The ICEP must be kept current and used to monitor progress to ensure that all internal control evaluations are conducted as scheduled. The ASA (FM&C) will develop and maintain a current inventory of functional areas with key internal controls on the ASA (FM&C) Web site.
a. Background. The absence or ineffectiveness of internal controls constitutes a deficiency, weakness, or material weakness that must be corrected. Whether the weakness is serious enough to be considered material and reported to the next level of command is a management judgment that must be made based on the criteria outlined in paragraphs 2-7 c and 2-7 d , below. This includes the potential to cause a material misstatement in the Army annual financial statements. The reporting of material weaknesses is not a new requirement because managers have always had an inherent responsibility to keep the next level of management informed of sensitive problems and issues. The ability of management at all levels to detect, or be aware of, internal control or systemic weaknesses and to take corrective action is the fundamental goal of the FMFIA.
b. Reporting process. Significant deficiencies indicating the absence or ineffectiveness of internal controls and those weaknesses that warrant attention of HQDA for awareness or assistance in correcting should be submitted by the reporting organization. Material weaknesses should be reported to HQDA through command channels in a timely manner; however, the frequency of reporting is a command prerogative.
(1) Reporting organizations are encouraged to proactively implement those corrective actions that may be made at the local level to correct the weaknesses. The activity should then report the significant actions taken to enhance internal controls as positive accomplishments in Tab A of their annual statement of assurance.
(2) The ASA (FM&C) will review the weakness reported and will forward it to the appropriate HQDA functional proponents for evaluation.
(3) The HQDA functional proponents will review material weaknesses in internal controls submitted by ACOMs, ASCCs, and DRUs to determine if they need additional coordination, assess their materiality, and provide written feedback within 10 business days to ASA (FM&C) and the reporting organization recommending that the material weakness be —
(a) Returned to the reporting organization for monitoring and resolution at a lower level. The HQDA functional proponent will provide guidance and assistance, as required, to ensure that the weakness is corrected.
(b) Accepted as an issue requiring action but not reported as an Army-level material weakness. The HQDA functional proponent will coordinate with ASA (FM&C), USAAA, the reporting organization, and other stakeholders, as required, to determine the appropriate corrective action.
(c) Adopted as a HQDA-level material weakness for inclusion in the SA's annual statement of assurance. The HQDA functional proponent will then develop a material weakness corrective action plan (in coordination with the reporting organization), staffing it with ASA (FM&C), USAAA, and other stakeholders, as required. The corrective action plan should be developed within 30 days and must include achievable milestones that will ultimately result in validated correction of the weakness.
(4) The proposed HQDA material weakness and action plan will then be briefed to the SLSG/SAT for validation and approval. If approved, the material weakness and associated milestones will be included as part of the SA's annual statement of assurance. The ASA (FM&C) will then use the minutes of each SLSG meeting as a medium to communicate the status of reported weaknesses to ACOM, ASCC, and DRU commanders. Recommendations not resulting in a material weakness for the Army's annual statement of assurance, but requiring action from HQDA functional proponent, may be monitored by the SLSG to ensure timely resolution.
c. Essential criteria for material weaknesses. To be considered material, a weakness must meet the following two conditions:
(1) It must involve a weakness in internal controls — such as the controls are not in place, are not being used, or are inadequate. Resource deficiencies in themselves are not internal control weaknesses.
(2) It must warrant the attention of the next level of command, either because that next level must take action or because it must be aware of the problem. This requires a management judgment, particularly in determining whether the next level of command must be aware of a weakness. The fact that a weakness can be corrected at one level does not exclude it from being reported to the next level because the sharing of important management information is one of the primary reasons for reporting a material weakness.
d. Other factors. To assist in making judgments on whether internal control weaknesses are material, the following factors should be considered: actual or potential loss of resources; sensitivity of the resources involved; magnitude of funds, property, or other resources involved; actual or potential frequency of loss; current or probable media interest (adverse publicity); current or probable congressional interest (adverse publicity); unreliable information causing unsound management decisions; diminished credibility or reputation of management; impairment of essential mission; violation of statutory or regulatory requirements; information security risk; and public deprivation of needed government services. Additionally, a material weakness related to financial reporting would be one that could potentially result in a material misstatement in annual financial statements. Materiality levels and thresholds are determined by each level in the chain of command for a reported material weakness. The HQDA functional proponents, in coordination with ASA (FM&C), will make the final decision on materiality before the Army annual statement of assurance is submitted to the SA.
e. Correction. Each material weakness reported, including those related to ICOFR and ICOFS, must include a plan of corrective action. The Department of Defense requires that the last milestone in this plan validate that the corrective actions have in fact resolved the weakness. Material weaknesses may not be closed until this validation milestone has been accomplished. Detailed guidance for reporting material weaknesses is provided in ASA (FM&C)'s annual instructions for the preparation of feeder annual statement of assurance.
f. Tracking. As indicated previously, material weaknesses are reported to higher headquarters either because that level must be aware of the weakness or because it must take corrective action. In the case of material weaknesses reported for awareness, reporting organizations are responsible for tracking the weakness to ensure that corrective actions have been completed and the weakness was effectively resolved. In the case of material weaknesses reported for corrective action, tracking of the weakness will depend on the higher headquarters' disposition of the issue. The system established to track material weaknesses should not duplicate the normal tracking functions of IR organizations. Tracking of an audit or IR finding may well meet the requirement for tracking of a reported material weakness. Keep in mind, however, that a finding by auditors or IR personnel and a material weakness identified by management may not be identical; they may be different in scope and may have different corrective actions. Where the material weaknesses are significantly different, the tracking system used must be able to effectively track the correction of the material weakness.
a. Headquarters, Department of the Army functional proponents, commanders, and AUMs can often take corrective or preventive action based on problems identified in IRs, audits, and inspection reports. Such reports may address an internal control problem at only one installation, but managers throughout the Army can use these reports to identify potential problems in their own areas of responsibility and take timely preventative action.
b. Internal review, audit, and inspection organizations ensure distribution of their reports to managers with primary and collateral interests at all reporting organizations. In addition, The Auditor General and Army Inspector General organizations prepare summaries of internal control weaknesses identified in their reports. The DODIG also publishes periodic summaries of internal control weaknesses identified in its reports and those of GAO. The ASA (FM&C) periodically distributes these summaries to ICAs at reporting organizations to facilitate correction and mitigation of reported weaknesses and to ensure that managers can benefit from lessons learned at other activities. Finally, The Auditor General supports the development of the SA's annual statement of assurance by identifying potential Army material weaknesses for consideration by HQDA functional proponents.
The FMFIA requires the Secretary of Defense to submit an annual statement of assurance to the President and Congress on the status of ICONO within the DOD. In addition, OMB requires periodic updates on the status of material weaknesses DOD previously reported. The OMB Circular A-123, Appendix A also requires an annual statement of assurance related to ICOFR, and OMB Circular A-127 requires a statement of assurance related to ICOFS. The Army supports DOD in meeting these requirements in two ways:
a. Annual statement of assurance. Annually the SA must submit the annual statement of assurance, including ICOFR and ICOFS, to the Secretary of Defense for use in preparing the DOD annual statement of assurance to the President and Congress. The SA's annual statement of assurance is based primarily on annual statements of assurance from HQDA functional proponents, commanders, and managers of ACOMs, ASCCs, and DRUs. The ASA (FM&C) will issue instructions, in advance, for the preparation of these annual statements of assurance.
b. Periodic update. The Army is required to report to the Office of the Secretary of Defense any major changes in the plans for correcting material weaknesses. The ASA (FM&C) will issue appropriate guidance, in advance, for updates on Army material weaknesses.
a. Internal control evaluations plan. The ICEP will serve to document the required schedule of internal control evaluations within the assessable unit or the reporting organization. The ICEP will identify those areas to be evaluated, the year for the evaluation, and the official responsible for ensuring that the evaluation is conducted. Internal control evaluations must be supported by specific documentation, regardless of the method used to conduct the evaluation. At a minimum, this supporting documentation must clearly indicate who conducted the evaluation, the date the evaluation was conducted, what methods were used to test key internal controls, what internal control weaknesses (if any) were detected, and what corrective actions were taken. The completion of the DA Form 11-2 is certification that the evaluation was performed and appropriately documented. It is not intended to serve as a substitute for documenting the evaluation. All supporting documentation used to reach conclusions must be referenced on DA Form 11-2 and either attached or available for review. Documentation must be sufficient enough for an independent reviewer to reach the similar conclusions.
b. Annual statements of assurance and material weaknesses. Reporting organizations are responsible for maintaining copies of their annual statements of assurance, along with complete supporting documentation. Organizations responsible for tracking the correction of material weaknesses are also responsible for maintaining documentation on the status, effectiveness, and validation of corrective actions. The HQDA functional proponents are responsible for monitoring and documenting the correction of material weaknesses reported in the SA's annual statement of assurance and those material weaknesses requiring HQDA-level oversight to resolve but are not included in the Army's annual statement of assurance.
c. Retention. Documentation on internal control evaluations conducted, annual statements of assurance submitted, and material weaknesses reported must be maintained according to AR 25-400-2 .
(1) Assessable units must retain required documentation on the most recent internal control evaluation.
(2) Reporting organizations must retain copies of their annual statements of assurance and supporting documentation in accordance with the Army Records Information Management System (ARIMS).
(3) Reporting organizations must retain documentation on material weaknesses in accordance with ARIMS.
(4) Statement of assurance records are retained for 3 fiscal years after submission; if a material weakness has been reported, then the records are retained for 3 years after the weakness has been resolved and HQDA no longer requires reports on the status.
a. Background. The OMB Circular A-123, Appendix A requires that the performance agreements of senior managers include an explicit statement of responsibility for internal controls. The responsibility includes ICOFR as outlined in OMB Circular A-123, Appendix A.
b. Implementation. Supervisors must include an explicit statement of responsibility for internal controls in the performance agreements of commanders, managers, and ICAs responsible for the execution or oversight of effective internal controls, down to and including assessable unit level. The absence of an explicit statement of responsibility must be based on the supervisor's determination that the individual does not have significant management responsibilities.
(1) For military officers, the responsibility should be included under "Major Performance Objectives" in Part IV of DA Form 67-9-1 (Officer Evaluation Report Support Form).
(2) For "senior system" civilian employees under the Total Army Performance Evaluation System, the responsibility should be included under "Major Performance Objectives/Individual Performance Standards" in Part IV of DA Form 7222-1 (Senior System Civilian Evaluation Report Support Form).
(4) For nonappropriated fund personnel, guidance on performance standards is provided in AR 215-3 .
(5) For other performance and evaluation systems not mentioned, follow the governing regulation or published guidance for the specific system's performance objectives.
c. Application. The explicit statement of responsibility should be brief and may take any form, but it must be specific enough to provide individual accountability. Supervisors may use a stand-alone element or may include the internal control responsibility as part of a broader element. The following are examples of explicit statements that would suffice:
(1) Headquarters, Department of the Army functional proponents. These individuals should comply with paragraphs 1-8 and 1-13 of this regulation.
(2) Army command, Army service component command, and direct reporting unit commanders and managers. These individuals should comply with paragraph 1-13 of this regulation.
(3) Senior responsible officials. These individuals should comply with paragraph 1-14 of this regulation.
(4) Assessable unit commanders or managers. These individuals should comply with paragraph 1-15 of this regulation.
(5) Internal control administrators. These individuals should comply with paragraph 1-17 of this regulation.
This section contains no entries.
A related publication is a source of additional information. The user does not have to read a related publication to understand this publication. Army regulations are available on the Army Publishing Directorate (APD) Web site at http://www.apd.army.mil . Department of Defense directives and instructions are available at http://www.dtic.mil/whs/directive .
The Comptroller General of the United States established these standards for defining the minimum level of quality acceptable for internal control in government and providing the basis against which internal control is to be evaluated. These standards apply to all aspects of an agency's operations: programmatic, financial, and compliance. However, they are not intended to limit or interfere with duly granted authority related to developing legislation, rule making, or other discretionary policy making in an agency. These standards provide a general framework. In implementing these standards, management is responsible for developing the detailed policies, procedures, and practices to fit their agency's operations and to ensure that they are built into and are an integral part of operations. Paragraphs B-2 through B-6 , below, present short, concise statements for each of these standards and provides additional information to help managers incorporate the standards into their daily operations.
B-2. Control environment
a. Standard. Management and employees should establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management.
(1) A positive control environment is the foundation for all other standards. It provides discipline and structure as well as the climate which influences the quality of internal control. Several key factors affect the control environment.
(2) One factor is the integrity and ethical values maintained and demonstrated by management and staff. Agency management plays a key role in providing leadership in this area, especially in setting and maintaining the organization's ethical tone, providing guidance for proper behavior, removing temptations for unethical behavior, and providing discipline when appropriate.
(3) Another factor is management's commitment to competence. All personnel need to possess and maintain a level of competence that allows them to accomplish their assigned duties, as well as understand the importance of developing and implementing good internal control. Management needs to identify appropriate knowledge and skills needed for various jobs and provide needed training, as well as candid and constructive counseling and performance appraisals.
(4) Management's philosophy and operating style also affect the environment. This factor determines the degree of risk the agency is willing to take and management's philosophy towards performance-based management. Further, the attitude and philosophy of management toward information systems, accounting, personnel functions, monitoring, and audits and evaluations can have a profound effect on internal control.
(5) Another factor affecting the environment is the agency's organizational structure. It provides management's framework for planning, directing, and controlling operations to achieve agency objectives. A good internal control environment requires that the agency's organizational structure clearly define key areas of authority and responsibility and establish appropriate lines of reporting.
(6) The environment is also affected by the manner in which the agency delegates authority and responsibility throughout the organization. This delegation covers authority and responsibility for operating activities, reporting relationships, and authorization protocols.
(7) Good human capital policies and practices are another critical environmental factor. This includes establishing appropriate practices for hiring, orienting, training, evaluating, counseling, promoting, compensating, and disciplining personnel. It also includes providing a proper amount of supervision.
(8) A final factor affecting the environment is the agency's relationship with the Congress and central oversight agencies such as OMB. Congress mandates the programs that agencies undertake and monitors their progress, and central agencies provide policy and guidance on many different matters. In addition, The Inspector General and internal senior management councils can contribute to a good overall control environment.
B-3. Risk assessment
a. Standard. Internal control should provide for an assessment of the risks the agency faces from both external and internal sources.
(1) A precondition to risk assessment is the establishment of clear, consistent agency objectives. Risk assessment is the identification and analysis of relevant risks associated with achieving the objectives, such as those defined in strategic and annual performance plans developed under the Government Performance and Results Act, and forming a basis for determining how risks should be managed.
(2) Management needs to comprehensively identify risks and should consider all significant interactions between the entity and other parties as well as internal factors at both the entity-wide and activity level. Risk identification methods may include qualitative and quantitative ranking activities, management conferences, forecasting and strategic planning, and consideration of findings from audits and other assessments.
(3) Once risks have been identified, they should be analyzed for their possible effect. Risk analysis generally includes estimating the risk's significance, assessing the likelihood of its occurrence, and deciding how to manage the risk and what actions should be taken. The specific risk analysis methodology used can vary by agency because of differences in agencies' missions and the difficulty in qualitatively and quantitatively assigning risk levels.
(4) Because governmental, economic, industry, regulatory, and operating conditions continually change, mechanisms should be provided to identify and deal with any special risks prompted by such changes.
B-4. Control activities
a. Standard. Internal control activities help ensure that management's directives are carried out. The control activities should be effective and efficient in accomplishing the agency's control objectives.
(1) Control activities are the policies, procedures, techniques, and mechanisms that enforce management's directives, such as the process of adhering to requirements for budget development and execution. They help ensure that actions are taken to address risks. Control activities are an integral part of an entity's planning, implementing, reviewing, and accountability for stewardship of government resources and achieving effective results.
(2) Control activities occur at all levels and functions of the entity. They include a wide range of diverse activities such as approvals, authorizations, verifications, reconciliations, performance reviews, maintenance of security, and the creation and maintenance of related records which provide evidence of execution of these activities as well as appropriate documentation. Control activities may be applied in a computerized information system environment or through manual processes.
(3) Activities may be classified by specific control objectives, such as ensuring completeness and accuracy of information processing.
(4) There are certain categories of control activities that are common to all agencies. Examples include the following:
(a) Top level reviews of actual performance. Management should track major agency achievements and compare these to the plans, goals, and objectives established under the Government Performance and Results Act.
(b) Reviews by management at the functional or activity level. Managers also need to compare actual performance to planned or expected results throughout the organization and analyze significant differences.
(c) Management of human capital. Effective management of an organization's workforce — its human capital — is essential to achieving results and an important part of internal control. Management should view human capital as an asset rather than a cost. Only when the right personnel for the job are on board and are provided the right training, tools, structure, incentives, and responsibilities is operational success possible. Management should ensure that skill needs are continually assessed and that the organization is able to obtain a workforce that has the required skills that match those necessary to achieve organizational goals. Training should be aimed at developing and retaining employee skill levels to meet changing organizational needs. Qualified and continuous supervision should be provided to ensure that internal control objectives are achieved. Performance evaluation and feedback, supplemented by an effective reward system, should be designed to help employees understand the connection between their performance and the organization's success. As a part of its human capital planning, management should also consider how best to retain valuable employees, plan for their eventual succession, and ensure continuity of needed skills and abilities.
(d) Controls over information processing. A variety of control activities are used in information processing. Examples include editing checks of data entered, accounting for transactions in numerical sequences, comparing file totals with control accounts, and controlling access to data, files, and programs. Further guidance on control activities for information processing is provided below under "Control activities specific for information systems."
(e) Physical control over vulnerable assets. An agency must establish physical control to secure and safeguard vulnerable assets. Examples include security for and limited access to assets such as cash, securities, inventories, and equipment which might be vulnerable to risk of loss or unauthorized use. Such assets should be periodically counted and compared to control records.
(f) Establishment and review of performance measures and indicators. Activities need to be established to monitor performance measures and indicators. These controls could call for comparisons and assessments relating different sets of data to one another so that analyses of the relationships can be made and appropriate actions taken. Controls should also be aimed at validating the propriety and integrity of both organizational and individual performance measures and indicators.
(g) Segregation of duties. Key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. This should include separating the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets. No one individual should control all key aspects of a transaction or event.
(h) Proper execution of transactions and events. Transactions and other significant events should be authorized and executed only by persons acting within the scope of their authority. This is the principal means of assuring that only valid transactions to exchange, transfer, use, or commit resources and other events are initiated or entered into. Authorizations should be clearly communicated to managers and employees.
(i) Accurate and timely recording of transactions and events. Transactions should be promptly recorded to maintain their relevance and value to management in controlling operations and making decisions. This applies to the entire process or life cycle of a transaction or event from the initiation and authorization through its final classification in summary records. In addition, control activities help to ensure that all transactions are completely and accurately recorded.
(j) Access restrictions to and accountability for resources and records. Access to resources and records should be limited to authorized individuals, and accountability for their custody and use should be assigned and maintained. Periodic comparison of resources with the recorded accountability should be made to help reduce the risk of errors, fraud, misuse, or unauthorized alteration.
(k) Appropriate documentation of transactions and internal control.
(1) Internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. The documentation should appear in management directives, administrative policies, or operating manuals and may be in paper or electronic form. All documentation and records should be properly managed and maintained.
(2) These examples are meant only to illustrate the range and variety of control activities that may be useful to agency managers. They are not all-inclusive and may not include particular control activities that an agency may need.
(3) Furthermore, an agency's internal control should be flexible to allow agencies to tailor control activities to fit their special needs. The specific control activities used by a given agency may be different from those used by others due to a number of factors. These could include specific threats they face and risks they incur; differences in objectives; managerial judgment; size and complexity of the organization; operational environment; sensitivity and value of data; and requirements for system reliability, availability, and performance.
(l) Control activities specific for information systems. There are two broad groupings of information systems control — general control and application control. General control applies to all information systems (mainframe, minicomputer, network, and end-user environments). Application control is designed to cover the processing of data within the application software.
(1) General Control. This category includes entity-wide security program planning, management, control over data center operations, system software acquisition and maintenance, access security, and application system development and maintenance. More specifically —
(a) Data center and client-server operations controls include backup and recovery procedures, and contingency and disaster planning. In addition, data center operations controls also include job setup and scheduling procedures and controls over operator activities.
(b) System software control includes control over the acquisition, implementation, and maintenance of all system software including the operating system, data-based management systems, telecommunications, security software, and utility programs.
(c) Access security control protects the systems and network from inappropriate access and unauthorized use by hackers and other trespassers or inappropriate use by agency personnel. Specific control activities include frequent changes of dial-up numbers; use of dial-back access; restrictions on users to allow access only to system functions that they need; software and hardware "firewalls" to restrict access to assets, computers, and networks by external persons; and frequent changes of passwords and deactivation of former employees' passwords.
(d) Application system development and maintenance control provides the structure for safely developing new systems and modifying existing systems. Included are documentation requirements; authorizations for undertaking projects; and reviews, testing, and approvals of development and modification activities before placing systems into operation. An alternative to in-house development is the procurement of commercial software, but control is necessary to ensure that selected software meets the user's needs, and that it is properly placed into operation.
(2) Application control.
(a) This category of control helps ensure completeness, accuracy, authorization, and validity of all transactions during application processing. Control should be installed at an application's interfaces with other systems to ensure that all inputs have been received and are valid and outputs are correct and properly distributed. An example is computerized edit checks built into the system to review the format, existence, and reasonableness of data.
(b) General and application control over computer systems are interrelated. General control supports the functioning of application control, and both are needed to ensure complete and accurate information processing. If the general control is inadequate, the application control is unlikely to function properly and could be overridden.
(c) Because information technology changes rapidly, controls must evolve to remain effective. Changes in technology and its application to electronic commerce and expanding internet applications will change the specific control activities that may be employed and how they are implemented, but the basic requirements of control will not have changed. As more powerful computers place more responsibility for data processing in the hands of the end users, the needed controls should be identified and implemented.
B-5. Information and communications
a. Standard. Information should be recorded and communicated to management and others within the entity who need it and in a form and within a time frame that enables them to carry out their internal control and other responsibilities.
(1) For an entity to run and control its operations, it must have relevant, reliable, and timely communications relating to internal as well as external events. Information is needed throughout the agency to achieve all of its objectives.
(2) Program managers need both operational and financial data to determine whether they are meeting their agencies' strategic and annual performance plans and meeting their goals for accountability for effective and efficient use of resources. For example, operating information is required for development of financial reports. This covers a broad range of data from purchases, subsidies, and other transactions to data on fixed assets, inventories, and receivables. Operating information is also needed to determine whether the agency is achieving its compliance requirements under various laws and regulations. Financial information is needed for both external and internal uses. It is required to develop financial statements for periodic external reporting, and, on a day-to-day basis, to make operating decisions, monitor performance, and allocate resources. Pertinent information should be identified, captured, and distributed in a form and time frame that permits people to perform their duties efficiently.
(3) Effective communications should occur in a broad sense with information flowing down, across, and up the organization. In addition to internal communications, management should ensure that there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals. Moreover, effective information technology management is critical to achieving useful, reliable, and continuous recording and communication of information.
a. Standard. Internal control monitoring should assess the quality of performance over time and ensure that the findings of audit and other reviews are promptly resolved.
(1) Internal control should generally be designed to assure that ongoing monitoring occurs in the course of normal operations. It is performed continually and is ingrained in the agency's operations. It includes regular management and supervisory activities, comparisons, reconciliations, and other actions people take in performing their duties.
(2) Separate evaluations of control can also be useful by focusing directly on the controls' effectiveness at a specific time. The scope and frequency of separate evaluations should depend primarily on the assessment of risks and the effectiveness of ongoing monitoring procedures. Separate evaluations may take the form of self-assessments as well as review of control design and direct testing of internal control. Separate evaluations also may be performed by the agency Inspector General or an external auditor. Deficiencies found during ongoing monitoring or through separate evaluations should be communicated to the individual responsible for the function and also to at least one level of management above that individual. Serious matters should be reported to top management.
(3) Monitoring of internal control should include policies and procedures for ensuring that the findings of audits and other reviews are promptly resolved. Managers are to —
(a) Promptly evaluate findings from audits and other reviews, including those showing deficiencies and recommendations reported by auditors and others who evaluate agencies' operations.
(b) Determine proper actions in response to findings and recommendations from audits and reviews.
(c) Complete, within established time frames, all actions that correct or otherwise resolve the matters brought to managements attention.
(4) The resolution process begins when audit or other review results are reported to management and is completed only after action has been taken that —
(a) Corrects identified deficiencies.
(b) Produces improvements or demonstrates the findings and recommendations do not warrant management action.
C-1. Reporting guidelines
When reporting a material weakness in internal controls, the DOD component will identify which function the material weakness concerns.
C-2. Reporting categories
The following will be used as the reporting categories used to classify the material weaknesses:
a. Communication, intelligence, and/or security. The plans, operations, systems, and management activities for accomplishing the communications and intelligence missions and safeguarding classified resources (not peripheral assets and support functions covered by other reporting categories). It also covers the DOD programs for protection of classified information.
b. Comptroller and/or resource management. The budget process, finance and accounting, cost analysis, productivity and management improvement, and the general allocation and continuing evaluation of available resources to accomplish mission objectives. It includes pay and allowances for all DOD personnel and all financial management areas not covered by other reporting categories, including those in connection with OMB Circular A-123.
c. Contract administration. The fulfillment of contractual requirements including performance and delivery, quality control and testing to meet specifications, performance acceptance, billing and payment controls, justification for contractual amendments, and actions to protect the best interests of the Government, according to OMB Memorandum, Conducting Acquisition Assessments under OMB Circular A-123; and guidance issued by DOD Acquisition, Technology, and Logistics "Assessment of Acquisition Functions" under OMB Circular A-123.
d. Financial reporting (pertaining to ICOFR). Processes, procedures, and systems used to prepare, compile, and generate the DOD financial statements according to OMB Circular A-123, and DOD 7000.14-R Volume I, Chapter 3; the Federal Accounting Standards Advisory Board (FASAB) guidance, Generally Accepted Accounting Principles; the Department of the Treasury Financial Manual, Volume I, Federal Agencies and U.S. Government Standard General Ledger; and the financial reporting guidance established by OMB Circular A-136.
e. Financial systems (pertaining to ICOFS) conformance with Federal requirements. The assessment, evaluation, and reporting of achievement or material weakness(es) of the IFMS's conformance with Federal requirements for financial systems in accordance with 31 USC 1101, 31 USC 3512, and 31 USC 7501; OMB Circular A-127; and DOD 7000.l4-R Volume I, Chapter 3.
f. Force readiness. The operational readiness capability of combat and combat support (both Active Army and Army Reserve) forces based on analyses of the use of resources to attain required combat capability or readiness levels.
g. Information technology. The design, development, testing, approval, deployment, use, and security of automated information systems (using a combination of computer hardware, software, data, or telecommunications that performs functions such as collecting, processing, storing, transmitting, or displaying information) and other technologies for processing management information. This includes requirements for justification of equipment and software. DODD 8000.01 may be helpful when evaluating a weakness for inclusion in this category.
h. Major systems acquisition. Items designated as major systems, subject to the procedures of the Defense Acquisition Board, the Military Services Acquisition Review Councils, or the Selected Acquisition Reporting System. DODD 5000.01 and DOD 8910.1-M may be helpful when evaluating a weakness for inclusion in this category.
i. Manufacturing, maintenance, and repair. The management and operation of in-house and contractor-operated facilities performing maintenance and repair and/or installation of modifications to materiel, equipment, and supplies. It includes depot and arsenal-type facilities as well as intermediate and unit levels of military organizations.
j. Other (primary transportation). All functional responsibilities not represented by any other functional category, including management and use of land, sea, and air transportation for movement of personnel, materiel, supplies, and equipment using military and civilian sources.
k. Personnel and/or organization management. Authorizations, recruitment, training, assignment, use, development, and management of military and civilian DOD personnel. It also includes the operations of headquarters' organizations. Contract personnel are not covered by this category.
l. Procurement. The decisions to purchase items and services with certain actions to award and amend contracts (for example, contractual provisions, type of contract, invitation to bid, independent Government cost estimate, technical specifications, evaluation and selection process, pricing, and reporting).
m. Property management. Construction, rehabilitation, modernization, expansion, improvement, management, and control over real property (both military and civil works construction), to include installed equipment, and personal property. It also covers disposal actions for all materiel, equipment, and supplies including the Defense Reutilization and Marketing System.
n. Research, development, test, and evaluation. The basic project definition, approval, and transition from basic research through development, test, and evaluation and all DOD and contractor operations involved in accomplishing the project work, excluding the support functions covered in separate reporting categories such as procurement and contract administration.
o. Security assistance. Management of DOD foreign military sales, grant aid, and International Military Education and Training Programs.
p. Supply operations. The supply operations at the wholesale (depot and inventory control point) level from the initial determination of material requirements through receipt, storage, issue reporting, and inventory control (excluding the procurement of materials and supplies). It covers all supply operations at retail (customer) level, including the accountability and control for supplies and equipment of all commodities in the supply accounts of all units and organizations (excluding the procurement of material, equipment, and supplies).
q. Support services. All support service functions financed from appropriated funds not covered by the other reporting categories such as health care, veterinary care, and legal and public affairs services. All nonappropriated fund activities are also covered by this category.
The function covered by this evaluation is the administration of the Managers' Internal Control Program.
The purpose of this evaluation is to assist AUMs and ICAs in evaluating the key internal controls outlined. It is not intended to cover all controls.
These key internal controls must be formally evaluated at least once every 5 years or whenever the ICA changes. Certification that this evaluation has been conducted must be accomplished on DA Form 11-2 . Evaluation test questions are outlined in paragraph D-4 , below, and are intended as a start point for each applicable level of internal control evaluation. Answers must be based on the actual testing of key internal controls (for example, document analysis, direct observation, sampling, simulation, or other). Answers that indicate deficiencies must be explained and corrective action indicated in supporting documentation.
D-4. Test questions
a. Are key internal controls identified in the governing Army regulations? (HQDA functional proponents only.)
b. Are internal control evaluations provided or alternate evaluation methods identified to test key internal controls? (HQDA functional proponents only.)
c. Is local internal control guidance available that defines internal control responsibilities and required actions?
d. Are AUMs, managers, and ICAs trained in, and do they understand their internal control responsibilities?
e. Are explicit statements of internal control responsibility included in performance agreements for commanders, AUMs, and ICAs down to and including the assessable unit level?
f. Is an ICEP established and maintained to describe how key internal controls will be evaluated over a 5-year period?
g. Are internal control evaluations conducted in accordance with the ICEP and prompt action taken to correct any internal control weaknesses detected?
h. Is the SRO advised of potential material weaknesses detected through internal control evaluations or from other sources?
This evaluation replaces the management control evaluation checklist previously published in AR 11-2, Management Control, 1 August 1994.
Help to make this a better tool for evaluating internal controls. Submit comments to Assistant Secretary of the Army (Financial Management and Comptroller) (SAFM-FOA), 109 Army Pentagon, Washington, DC 20310-0109.
Administrative Assistant to the Secretary of the Army
Army Records Information Management System
Assistant Secretary of the Army (Financial Management and Comptroller)
Army service component command
assessable unit manager
Corps of Engineers Financial Management System
Department of the Army
Department of Defense
Department of Defense directive
Department of Defense instruction
Department of Defense Inspector General
direct reporting unit
Federal Managers' Financial Integrity Act
Government Accountability Office
Headquarters, Department of the Army
internal control administrator
internal control evaluation plan
internal control over financial reporting
internal control over financial systems
internal control over nonfinancial operations
integrated financial management systems
Managers' Internal Control Program
Office of Management and Budget
Office of the Assistant Secretary of the Army
Office of the Secretary of the Army
Secretary of the Army
senior assessment team
senior level steering group
senior responsible official
United States Army Audit Agency
U.S. Army Corps of Engineers
Alternative internal control evaluation
Any existing management review process that meets the basic requirements of an internal control evaluation that assesses the key internal controls, evaluates the controls by testing them, and provides the required documentation. These existing management review processes may be unique to a specific functional area or they may be generic, such as the Command Inspection Program or reviews by IR evaluators.
Reporting organizations are segmented into assessable units, which in turn are responsible for conducting internal control evaluations in accordance with the ICEP.
Assessable unit manager (AUM)
The military or civilian head of an assessable unit. Preferably at the general officer or senior executive service level but not lower than an O-6, GS-15, or equivalent. In exceptional cases where the grade structure does not support having an AUM at this level, the AUM will be the senior military or HQDA civilian functional manager. The AUM ensures that the results of required internal control evaluations are certified.
Financial statement reporting entity
For the Army, these include the general fund, Army working capital fund, and the civil works fund (Corps of Engineers).
Government Accountability Office standards for internal control in the Federal Government
The standards issued by the GAO to be applied by all managers in the Federal Government in developing, establishing, and maintaining internal controls.
Headquarters, Department of the Army functional proponent
The HQDA principal responsible for policy and oversight of a particular functional area.
Integrated financial management system (IFMS)
The IFMS is a unified set of financial systems and the financial portions of mixed systems encompassing the software, hardware, personnel, processes (manual and automated), procedures, controls, and data necessary to carry out financial management functions, manage financial operations of the agency, and report on the agency's financial status to central agencies, Congress, and the public.
The rules, procedures, techniques, and devices employed by managers to ensure that what should occur in their daily operations does occur on a continuing basis. Internal controls include such things as the organizational structure itself (designating specific responsibilities and accountability), formally defined procedures (for example, required certifications and reconciliations), checks and balances (for example, separation of duties), recurring reports and management reviews, supervisory monitoring, physical devices (for example, locks and fences), and a broad array of measures used by managers to provide reasonable assurance that their subordinates are performing as intended.
Internal control administrator (ICA)
The individual designated by the SRO to administer the MICP for a reporting organization. The AUMs designate ICAs below the reporting organizational level.
Internal control evaluation
A periodic, detailed assessment of key internal controls to determine whether they are operating as intended. This assessment must be based on the actual testing of key internal controls and must be supported by documentation (that is, the individuals who conducted the evaluation, the date of the evaluation, the methods used to test the controls, any deficiencies detected, and the corrective action taken).
Internal control evaluation plan
The written plan that describes how required internal control evaluations will be conducted over a 5-year period. The ICEP need not be lengthy and any format may be used, so long as it covers the key internal controls HQDA functional proponents identified and communicates clearly to subordinate managers what areas are to be evaluated, who will conduct the evaluation, when, and how.
Internal control over financial reporting (ICOFR)
The ICOFR provides reasonable assurance regarding the reliability of financial reporting. Reliability of financial reporting means that management can reasonably make the following assertions: (1) all reported transactions actually occurred during the reporting period and all assets and liabilities exist as of the reporting data (existence and occurrence); (2) all assets, liabilities, and transactions that should be reported have been included and no unauthorized transactions or balances are included (completeness); (3) all assets are legally owned by the agency and all liabilities are legal obligations of the agency (rights and obligations); (4) all assets and liabilities have been properly valued, and where applicable, all costs have been properly allocated (valuation); (5) the financial report is presented in the proper form and any required disclosures are present (presentation and disclosure); (6) the transactions are in compliance with applicable laws and regulations (compliance); (7) all assets have been safeguarded against fraud and abuse; and (8) documentation for internal control, all transactions, and other significant events is readily available for examination.
Internal control over financial systems (ICOFS)
A process to provide reasonable assurance regarding the reliability of the IFMS. The conduct of the assessment and evaluation of the IFMS's conformance with Federal requirements for financial systems in accordance with OMB Circular A-123 and Appendix A, OMB Circular A-127, and DOD 7000.14-R .
Internal control over nonfinancial operations (ICONO)
A process to provide reasonable assurance regarding the reliability of all functions under the FMFIA as defined in appendix C , of this regulation. It includes assessing the effectiveness of internal controls for those functions following guidance in OMB Circular A-123, AR 11-2 , and MICP annual guidance provided by ASA (FM&C).
Key internal controls
Those internal controls that must be implemented and sustained in daily operations to ensure organizational effectiveness and compliance with legal requirements. Key internal controls are identified by HQDA functional proponents in their governing Army regulations and establish the baseline requirement for internal control evaluations conducted by AUMs.
A material weakness is a significant deficiency or combination of significant deficiencies that result in a reasonable possibility that a material misstatement will not be prevented or detected. The absence or ineffectiveness of internal controls constitutes an internal control weakness. For an internal control weakness to be considered a material weakness, two conditions must be met. It must involve a weakness in internal controls (such as internal controls are not in place, are not being used, or they are inadequate) and it must warrant the attention of the next higher level either for awareness or action. The determination of materiality is reevaluated at each successive level of command.
An acceptable degree of confidence in the general adequacy of internal controls to deter or detect material failures in complying with the FMFIA objectives. The determination of reasonable assurance is a management judgment based upon the effectiveness of internal controls and the extent of internal control deficiencies and material weaknesses.
The HQDA staff agencies, ACOMs, ASCCs, and DRUs. These are the organizations that submit annual statements of assurance directly to ASA (FM&C) for the SA.
The probable or potential adverse effects from inadequate internal controls that may result in the loss of government resources through fraud, error, or mismanagement.
The process of evaluating the risks in a functional area based on the key internal controls that are in place. Specifically, risk assessment is measuring two quantities of the risk, the magnitude of the potential loss, and the probability that the loss will occur. In addition, the key internal controls employed to reduce risk should not exceed the benefits derived.
Senior management council
A committee or board of senior functional officials convened to advise the head of an organization on internal control matters, including the identification of internal control weaknesses that merit reporting as material weaknesses. At HQDA, a senior management council is convened through special sessions of the SLSG chaired by the ASA (FM&C) and representing all HQDA functional proponents.
Senior responsible official (SRO)
Designated by the head of the reporting organization, the SRO has overall responsibility for ensuring the implementation of an effective MICP within that organization.
Significant deficiency is a pervasive internal control weakness affecting two or more organizations disrupting or disabling good order of financial and nonfinancial operations rendering unacceptable risk levels with potential for fraud, waste, abuse, mismanagement, and loss of life or limb.
A question in an internal control evaluation designed to help an AUM determine whether a key internal control is in place and operating as intended.