1. Integrating Risk Management and Compliance into Integrated Financial Management Information Systems (IFMIS)

2. The Global Financial Environment

3. The Global Financial Environment
No successful economy or government can operate today without global interconnectivity
Markets and industries exist transparently across the globe, and conduct business 24 hours a day.
Growth of that connectivity has increased the demands for the availability and reliability of financial information
That information demand is fed by the growing use of automated Financial Management Systems, using integrated Information Technology (IT).

4. The New Financial Reporting Environment
As a result of the global economy, Financial Reporting must be relevant, timely, and comparable across jurisdictions
Company assets are considered more "intangible" and subject to inconsistent valuation
Company data is instantly accessible but not always sufficient to satisfy all stakeholders requirements
Citizens
Shareholders
Regulators

5. The Result of their Analysis?
In the long term, Financial reporting will be standardized to provide adequate information to all interested parties
Global auditing standards will converge and harmonize to deliver reasonable assurance of the accuracy of financial reports
Adoption of new data standards to improve enforcement of controls and improve detection of Fraud
Financial systems must have adequate internal controls enabled for consistent transparency

6. Impact on Federal Managers
Governments are increasingly involved in global financial markets, not only as regulators but as investors and participants.
They must provide the highest quality financial information to a range of interested parties, in a multitude of formats, often with repetitive efforts and inefficient processes.
Government agencies are entrusted by their citizens to maintain sound financial practices, limit fraud and corruption, and provide adequate controls over financial reporting

7. Overview of Internal Controls

8. Internal Controls Defined
Internal control is broadly defined as a process, effected by an entity's board of directors, management, and other personnel, that is designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
Source - The Committee of Sponsoring Organizations of the Treadway Commission Internal Control — Integrated Framework
Include examples of effective IC’s
Management has a fundamental responsibility to develop and maintain effective internal control.

9. Background on Internal Controls
Internal control is a means of managing the risk associated with programs and operations
Internal controls – organization, policies, and procedures – are tools to help program and financial managers achieve results and safeguard the integrity of their program

10. COSO
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
US private-sector initiative created in 1985.
Its major objective is to identify the factors that cause fraudulent financial reporting and to make recommendations to reduce its incidence.
COSO is sponsored by 5 main professional accounting organizations in the US:
American Institute of Certified Public Accountants (AICPA),
American Accounting Association (AAA),
Financial Executives Institute (FEI),
The Institute of Internal Auditors (IIA)
The Institute of Management Accountants (IMA).
COSO has established a common definition of internal controls, standards, and criteria against which companies and organizations can assess their control systems which is the basis for the SOX Internal Control framework.
Source:

11. COSO Internal controls structure

12. Control Environment
Sets the tone of the organization – influencing control consciousness of its people
Includes integrity, ethical values, competence, authority, and responsibility
Acts as foundation for all other components of control

13. Risk Assessment
Identification and analysis of relevant risks to achieving the entity's objectives – forming the basis for determining control activities

14. Control Activities
Policies and procedures assure management's directives are carried out
Range of activities, including approvals, authorizations, verifications, recommendations, performance reviews, asset security, and segregation of duties

15. Information and Communication
Pertinent information identified, captured, and communicated in a timely manner
Access to internally and externally generated information
Flow of information that allows for successful control actions from instructions on responsibilities to summary of findings for management action

16. Monitoring Assessment of a control system's performance over time
Combination of ongoing and separate evaluation
Management and supervisory activities
Internal audit activities

17. Internal Controls Are Integrated into Processes

18. Global Trends in Internal Control mandates

19. U.S. Sarbanes-Oxley Act
The Public Company Accounting Oversight Act, otherwise known U.S. Sarbanes-Oxley Act of 2002 or "SOX".
Composed of three sections:
Title I – Public Company Accounting Oversight Board. PCAOB formed as branch of Securities and Exchange Commission (SEC). Public Auditing firms must register with PCAOB and are now brought under the regulation of the PCAOB.
Title III – Corporate Responsibility. Section 302 establishes certification requirements for CEOs and CFOs of Annual and Quarterly reports filed with the SEC.
Title IV – Enhanced Financial Disclosures. Section 404 (a) requires management to assess and report on internal controls, and Section 404 (b) requires the company’s External Auditor to attest to and report on management’s assertions on internal controls.

20. Canadian Bill 198
Published in 2003 by the Ontario Securities Commission and the Canadian Security Administrators
Consists of three statutes:
Multilateral Instrument Auditor Oversight
Multilateral Instrument Certification of Disclosure in Companies' Annual and Interim Filings (“CSOx”)
Multilateral Instrument Audit Committees
Multilateral Instrument is basically Section 302 with an emphasis on Disclosure Controls and Procedures (DC&P).
Implementation of Section 404 equivalent certification still pending

21. Japanese SOX (J-SOX)
February 15th, 2007 – Business Accounting Council of the Financail Services Agency
"Implementation Standards for Evaluation and Auditing of Internal Controls over Financial Reporting"
Requires all publicly-held companies to submit consolidated internal control reports on or after April 1, 2008
Reporting standards similar to sections 302 and 404 under US SOX.

22. Evolution of Internal Controls in the US Government
Sarbanes
Oxley
2002
Budget and
Accounting
Procedures
Act of 1950
DHS
Financial
Accountability
Act
2004
FMFIA
1982
IG Act
1978
CFO Act
1990
FFMIA
1996
FISMA
2002
GAO directed to establish the standards for internal control
In 1983, GAO issued "Standards of Internal Control in the Federal Government" (also known as the "Green Book")
In 1999, GAO revised these standards to reflect new internal control
OMB directed to issue guidelines for issuing internal control assessment.
OMB Circular A-123 originally issued in 1981, revised in 1995 and 2004.
OMB
A-123
2004
OMB
A-123
1981
OMB
A-123
1995
OMB
Q&A
1984
CFO Council
Implementation
Guide
2005
GAO
Green Book
1983
GAO
Green Book
1999

23. Other International Government Standards
INTOSAI Internal Control Standards
UK Government Internal Audit Good Practice Guide
Canada Government Internal Audit Policy
Institute of Internal Auditors (IIA) Code of Ethics
Canadian Government risk management framework

24. Integrated Financial Management Information Systems (IFMIS)

25. Describing a Financial Management System
The term "financial management system" means an information system, comprised of one or more applications, that is used for any of the following:
Collecting, processing, maintaining, transmitting, and reporting data about financial events;
Supporting financial planning or budgeting activities;
Accumulating and reporting cost information; or
Supporting the preparation of financial statements
A financial system may include multiple applications that are integrated through a common database or are electronically interfaced, as necessary, to meet defined data and processing requirements
Source: Office of Management and Budget (OMB) Circular A-127

26. Information Technology (IT) and IFMIS
IFMIS systems are designed to automate financial process to aid transparency and accountability in public financial management
Modern Financial Management Systems are driven by IT
Key to driving adequate transparency and accountability is to enable systems with comprehensive internal controls framework
IT requires special considerations to properly implement and enforce Internal Controls

27. IT 's Potential Contribution to Internal Control
IT provides potential benefits of effectiveness and efficiency for an entity’s internal control because it enables an entity to:
Consistently apply predefined business rules and perform complex calculations in processing large volumes of transactions and data
Enhance the timeliness, availability, and accuracy of information
Facilitate the additional analysis of information from multiple sources on an as needed basis
n       Highly automated system IT key control
n       Key components on a general basis
n       IT relying on data – so important to know controls around that data.

28. IT's Potential Contribution to Internal Control (cont.)
Enhance the ability to monitor the performance of the entity’s activities, policies, and procedures
Reduce the risk that controls will be circumvented
Enhance the ability to achieve effective segregation of duties by implementing security controls in applications, databases, and operating systems
n       Highly automated system IT key control
n       Key components on a general basis
n       IT relying on data – so important to know controls around that data.

29. IT as a Source of Risk
Reliance on systems or programs that are inaccurately processing data, processing inaccurate data, or both
Unauthorized access to data that may result in destruction of data or misappropriation of assets through improper changes to data, including the recording of unauthorized or nonexistent transactions, or inaccurate recording of transactions
Potential loss of data
Unauthorized changes to data in master files
Unauthorized changes to systems or programs
Failure to make necessary changes to systems or programs
Inappropriate manual intervention

30. Automation of Internal Controls and Risk Management
What are auditors’ expectations when evaluating management's internal control program?
What are some strategies for working with auditors to resolve long-standing internal control problems (where there is an impasse)?
What is the appropriate level of involvement for auditors in advising management on internal control issues? (followup - to what extent can auditors share their workpapers, audit plan, or other materials with management in ways that would help management improve its internal control program?)
What are some best practices for management in setting the "tone at the top?"
Other than the threat of an adverse audit finding, how can internal control program managers motivate other stakeholders to be proactive about implementing and testing controls?
How often is it appropriate for steering committees to meet? How much detail should the steering committee get involved with?
Can automation be used to improve communication among stakeholders?

31. Why Automate the Controls Process?
Given the complexity of IT and financial reporting, automated controls software can potentially provide tremendous benefits to an internal controls program.
Automated solutions can detect, monitor, and report a wide range of control issues, risk areas, and performance indicators.
Software allows for business rules to be built into system to insure compliance with regulations and automate reporting processes.

32. Benefits of automation
Provides structure for the internal control program
Improves monitoring of control deficiencies and corrective action plans at all levels of management within an organization
Provides a repository of documentation that can be made available to auditors and stakeholders
Enables senior management to gain awareness of areas that require process changes or additional resources

33. Discipline over internal control program
Software can help an organization maintain discipline over its internal control program by providing a framework for documenting and assessing controls, testing internal controls or controlling the workflow to ensure the controls are enforced
Software can make it easier to demonstrate your internal controls to your auditors and may lessen the amount of testing that needs to be performed by the auditors
As a lead in to the next slides elaborate on how the requirements for documentation have changed from the past as a result of OMB A-123

34. Uses of automated internal control software
The types of software available in the market include:
Testing and Reporting
Document and records management
Business process modeling
Policy management
Risk management and risk assessment
Support for multiple control frameworks
Support for multiple regulations across multiple business units
Controls automation and monitoring

35. Repository software
Provides a central repository for the documentation of internal controls throughout the organization
Allows the documentation of workflow and key processes, control objectives, control activities and risks for each major function in the organization
May be set up as a web based tool that allows multiple users to input information
Allows the organization to centrally manage the documentation of internal controls and capture information about the results of testing
May come "out of the box" with standard templates for control objectives, control activities and risks
Include examples of effective IC’s

36. Testing software
Allows an organization to test the internal controls of a system by directly interfacing with the system
May test for segregation of duty and authorization violations
Allows organizations to identify where violations can or have occurred and make changes to business processes or roles as appropriate
May come "out of the box" with standard control objectives and control activities that can be modified as appropriate
May has a limited repository capability to document workflow

37. Business process management software
Allows an organization to design and dictate the workflow for a given process
Integral to the performance of the process
Allows for the documentation of the workflow process
The workflow is performed outside of the primary system
Helps ensure the workflow process is performed as designed by not allowing the process to continue until each step is performed
May include features such as notification when a step has been completed
May have a limited capability for repository or to test transactions

38. Reporting capabilities
Capabilities may allow for management reports to provide a status on one or more of the following:
Documentation or testing of controls
Potential violations that have been identified
Where a document is in the process
May also allow for customizable management reports
May be capable of personalized "dashboards" for each user that present a current status, a "to do" list and interactive reports with drilldown capability

39. Basic steps to implementing a software solution
Selection
Products should be selected based on the needs of a defined internal controls program
A requirements analysis should be performed to identify areas that the program can be improved, or further meet compliance goals
The analysis forms the basis for product selection
Implementation
Once a product is selected, an implementation plan should be developed
The plan incorporates the required steps to implement the solution and how the functions will be used in the corresponding areas of the internal control program

40. Basic steps to implementing a software solution
Utilization
Once the solution is fully implemented, the full functionality of the solution can be utilized
Key performance indicators (KPIs) should be established that measure how well the solution is improving risk management and compliance efforts.
Example KPIs include:
Improved rate of fraud detection
Improved speed in reporting
Accuracy of reporting measures

41. Conclusions
The implementation, maintenance and reporting of Internal controls compliance and risk management is the way of the future for global financial management and accounting
Financial reporting will become increasingly demanding and require greater transparency and validity of financial information
Automated tools and processes can be of benefit in managing the increasing level of effort in meeting the demands for financial reporting, managing risk and providing reasonable assurance of internal controls and fraud detection.