Attachment A 2008 Optional Topics Effective Internal Control in State and Local Government Public reporting of internal control weaknesses has been part of Government Auditing Standards for several decades. The Federal Managers’ Financial Integrity Act (FMFIA) in 1982 called for management to make annual assessments of internal controls across the federal entity. Recently under OMB Bulletin A136, management makes assertions about internal control. In addition, OMB Bulletin A123 has added requirements for internal control assessments similar to those in Sarbanes-Oxley. Some state and local governments have adopted similar requirements. What have been the benefits, costs, scope and nature of these requirements? How effective have the legislative or administrative actions been at strengthening internal controls in their target government? What information and assurances do users need and want concerning internal controls? Effective Internal Control in Federal Government Public reporting of internal control weaknesses has been part of Government Auditing Standards for several decades. The Federal Managers’ Financial Integrity Act (FMFIA) in 1982 called for management to make annual assessments of internal controls across the federal entity. The Federal Financial Management Improvement Act (FFMIA) of 1996 required auditors to report whether federal entity systems met three requirements. Recently under OMB Bulletin A136, management makes assertions about internal control. In addition, OMB Bulletin A123 has added requirements for internal control assessments similar to those in Sarbanes-Oxley. What have been the benefits, costs, scope and nature of these requirements? How effective have the requirements been at strengthening internal controls in their federal agencies? What information and assurances do users need and want concerning internal controls? The Role of Controllership in Modern Government Financial Operations Historically, governmental entities have been driven by different financial and controls goals from those in private sector entities. Working with taxpayer funds with no direct profit motive, definitions of success and failure have been more complex and more politically exposed than in private sector entities. Increasingly, prompted by taxpayer and oversight attention to proper financial and performance challenges, government financial managers have been pressed to focus on increasing efficiency and effectiveness in controlling public funds. A study of the various roles and functions defined at state, municipal and federal levels for controllers and chief financial officers (and their offices) would be beneficial. Such a study could focus on comparisons of models at state, municipal and federal levels; their differing definitions of authority and responsibility; definition of existing measures of controller effectiveness and the various models' relative effectiveness in meeting different goals. Defining and Evaluating the Role of Shared Services in Governmental Financial Operations Prompted by perceived economies of scale and a desire to normalize like financial functions across different operating entities, government began decades ago to use shared service centers. Government functions with clear private sector parallels, such as payroll or debt collection, have been operating in shared environments for many years. Others, such as travel, audit and the like, are still "finding their way" into shared environments. This study may identify the most common forms of state and federal shared service arrangements for financial operations and present the models most often used at both levels. A framework for comparative analysis of the most dominant models may be developed and used to identify the relative strengths and weaknesses of the most prevalent models along key performance goals, including efficiency, customer service impact and quality control metrics. Evaluation of Materiality in Government Financial Reporting and Auditing Government financial managers use materiality in deciding what to report and disclose and how much misstatement to allow in their reports. The materiality threshold that the auditor uses in a governmental audit has a significant impact on the nature, timing and extent of testing. The level set should consider how users use financial statements in making decisions, what financial statement users consider important in the financial statements, and how much misstatement they can tolerate before a financial statement is misleading. However, in the public sector, materiality considerations go beyond the merely quantitative aspects of financial misstatement, and involve qualitative issues that relate to the importance of retaining the public’s trust in government. Research proposals on how users use financial statements, the relationship between determinations of materiality for accounting or auditing purposes versus the public’s perceptions of materiality and significance would be welcome. Timely Financial Reporting in the Government Environment Timeliness of the information improves the decision-utility of financial reports. Although the various users of all government financial reports deserve timely information to support their decision-making, federal, state and local governments vary markedly in the timeliness of their financial reporting. Research examining and documenting those factors that contribute to timely versus untimely reporting among and between different government entities could provide insights and best practices to the government accounting community. Research may include characteristics of government entities that fall along the spectrum of timeliness in financial reporting. Using Generally Accepted Accounting Principles in Government Decision Making The budget is state and local governments’ major financial decision-making process. Few if any of these budgets are prepared in accordance with Generally Accepted Accounting Principles (GAAP). Although the governmental entity’s annual financial report (CAFR) provides information that would be useful during this process, it has seldom been used. Reasons for the “disconnect” between government’s plan (budget) and its annual report (CAFR) include timing issues and incompatible accounting approaches. Specifically, a governmental entity’s GAAP based comprehensive annual financial report (CAFR) provides information usually materially divergent with that developed in the budget process. Research examining and documenting the availability and use of the CAFR information during the budget process could provide insights and best practices to government accounting community. Research should include reasons why GAAP is not used in preparing budgets and ways to make the CAFR information more useful during this process. Relationship and Organization Dynamics between CFO & CIO and How It Affects Service Delivery to Taxpayers The Chief Financial Officer (CFO) and Chief Information Officer (CIO) relationship and organizational dynamics significantly impact many aspects of the organization, including service delivery to taxpayers. The Chief Financial Officers (CFO) Act of 1990 established the CFO in the federal government. Many state and local government organizations also include CFO (controller) leadership. A study of the organizational reporting structure and inter- relationship of CFO’s and CIO’s that compares and contrasts effective service delivery of the entities would provide the government accounting community with information on successful organizational structure. Single Audit Act What have been the results both positive and negative of the Act? Have the objectives of the act been achieved both by the Federal program agencies and the state audit community? A study of the progress and any suggested changes may contribute to the governmental financial community. Note: The above topics are not the only topics of interest to the Academy Board of Trustees. Other topics related to government financial management or auditing, especially if it involves fiscal responsibility through citizen empowerment, will be considered for funding.
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