Exam 1 . Section VII Financial Management Responsibilities and Skills

AGA Montgomery Chapter CGFM Exam ReviewPresented By

Steven H. Emerson, CPA, CGFM, CGAP, CFE, CITP, CGMA

Exam 1 . Section VIIFinancial Management

Responsibilities and Skills

CFO ResponsibilitiesChief Financial Officer may be chief fiscal officer, finance

director, comptroller or treasurer. In Federal Agencies

Often appointed In State Agencies

Often electedThe Chief Financial Officer Act of 1990

Codifies the federal CFO’s rolePrimary duties of the federal CFO

Ensure effective accounting and financial systems are in place Ensure adequate financial management activities and operations are

designed and implemented by a well-qualified staff Prepare annual financial reports Identify budget requirements and monitor budget execution

Functions of the CFO

CFO Responsibilities - continuedThe CFO at the state level is usually grounded in laws and

regulations, as with the federal level.The State of Florida devotes an entire chapter of their

state codeChapter 17 of Title IV, with 66 articlesFlorida’s CFO is electedFlorida law echoes the CFO Act of 1990 for federal CFOs

States and local entities “tailor” the CFO role to suit their needsFlorida CFO responsible for statewide toll-free hotline as well as

check cashing for state employeesFlorida CFO and staff provides accounting and payroll services

on a fee basis to any college, local government or other entity that receives state funds

Functions of the CFO - continued

CFO Responsibilities - continued Chief Financial Officer Act of 1990

Agency CFO’s responsibilities include: Developing and maintaining integrated accounting and financial

management systems Directing, managing and providing policy guidance and oversight of all

agency financial management personnel, activities and operations Approving and managing financial management systems design and

enhancement projects Developing budgets for financial management operations and

improvements Overseeing the recruitment, selection and training of personnel to carry

out agency financial management functions Implementing agency asset management systems, including systems for

cash management, credit management, debt collection, property and inventory management and control and cost estimating

Monitoring the financial execution of the agency budget in relation to actual expenditures


CFO Responsibilities – continuedLocal Government CFOs

Duties are often defined by state statutes and elaborated in local charters and ordinances

Responsibilities are similar to their state and federal counterparts

The local CFO may personally perform a wider range of tasksThe local CFO may personally prepare the entity’s

budget and financial statements and reconcile the statements to the budget


CFO Responsibilities – continuedThe City of St. Louis, MO

Their fiscal officer (comptroller) is electedThe City Charter

Stipulates the annual salary of the fiscal officerRequires the incumbent be bonded for $300,000

The fiscal officerServes as general accountant and auditorRecords all special tax bills and liensHas the power to administer oathsHas overall charge to “preserve the credit of the city”


Leadership RoleThe CFO

Ensures the entity conforms with all laws and regulations pertaining to management of public resources

The role is complicated by intergovernmental grants and shared revenuesResults in multiple sets of rules and requirements

Operates as a trusted advisorDevelops and “markets” a vision that demands

quality and attracts and retains qualified and motivated personnel to the financial function and the organization as a whole


Leadership Role – continuedThe CFO – continued

Creates an atmosphere that eliminates impediments and promotes innovation, collaboration and cross-servicing

Establishes and maintains integrated accounting and financial management systems

Provides timely and cost-effective reports, analyses and advice to managers, clients, legislators and other decision-makers

Helps agency personnel and clients restructure their work processes to improve financial management and the quality of financial data

Promotes strategic planning and performance measurement and reporting


Support RoleCFOs

Support programs and program managersAssist other managers as they:

Work to identify and control risks Obtain and classify program data Weigh trade-offs in resource investments Implement new technology

Support the CEO in all areas of budget and financeAdvises the CEO on critical questions such as:

Are revenues keeping pace with budgetary estimates? Are expenditures aligned with appropriations? How will broad economic factors impact future revenues and

demands for services?May testify before legislators or provide other expert advice


Role of Financial Management Systems A Financial Management System

Organized means for the collection, processing, transmission and dissemination of financial information

May be automated or manual, though most entities use automated systems Encompasses much more than the “computer”

Components include: Processes and procedures (manual and automated) Documentation Internal controls Personnel System tests and audits Hardware and software Added components include:

Data administration policies Data dictionaries Procedures for interfacing with other systems

Financial Management Systems

Role of Financial Management Systems - continuedA Financial Management System - continued

Contains applications that support: Collection, processing, maintenance, transmission and reporting

of data about financial events Financial planning and budgeting activities Accumulation, reporting and analysis of cost information Preparation and dissemination of financial statements and other

reportsProvides other benefits

Promotes accountability by providing accurate information on how tax dollars are spent and how assets are protected

Promotes efficiency by increasing the reliability and reducing the cost of information

Supports decision-making by providing timely data that managers can use to link costs to outcomes and guide resource allocation

Financial Management Systems - continued

Guidelines and RequirementsU.S. Office of Management and Budget (OMB)

publishes “OMB Circular A-127: Financial Management Systems”Covers definitions and system requirements that

can be applied to any level of governmentAddresses the need for common data elements,

common transaction processing for similar transactions and efficient data entry (non-duplicate entry of data)

Covers the need to document instructions for both manual and automated systems (for automated systems, this includes complete documentation of computer code)


Guidelines and Requirements - continuedU.S. Office of Management and Budget (OMB)

publishes “OMB Circular A-127: Financial Management Systems” – continuedCovers the need to apply internal controls to all system

inputs, processing and outputs to ensure the validity and confidentiality of informationIncludes access controls and automated edits

Covers the need to provide adequate training and support to both users and operators of the system, based on their roles and responsibilities

Covers the need to provide ongoing maintenance to ensure systems are operating in an effective and efficient manner


Guidelines and Requirements - continuedThe Financial Systems Integration Office (FSIO) of the

General Services AdministrationAnother source of guidance for financial management

systemsThe FSIO publications, such as “Core Financial System

Requirements” are useful at all levels of governmentMore specific, as opposed to OMB Circular guidelines which

provides general guidance on system requirements i.e. it delineates the invoice attributes that should be captured in

the system Vendor ID Number Vendor Invoice Number Account Number Invoice Date Invoice Receipt Date


Guidelines and Requirements - continuedFSIO – continued

Excellent starting point for exploring how human resources relate to the overall success of a financial management system

Identified recommended core competencies for key individuals

Recommended core competencies for budget analysts, accountants, program managers, financial managers and others who play a role in sustaining the financial management system can be found on the FSIO website


Guidelines and Requirements - continuedThe Federal Financial Management

Improvement Act of 1996 (FFMIA)Provides guidance to agencies, including indicators

for use in evaluating financial management systems

Requires all agencies to maintain systems that comply with federal accounting standards and the U.S. Standard General Ledger

Requires auditors to report on the level of compliance of financial management systems

Requires agencies to adopt formal remediation plans if their systems fall short of requirements


Guidelines and Requirements - continuedState and Local Entities

Establish their own financial system policies and procedures i.e. The State of Ohio has a full library of policies and

technical guidance for its integrated financial management system.

The Ohio resources address common concerns such as the chart of accounts, data dictionary, reports, security and access controls, and job aids for users of the system

Government Financial SystemsUsually designed to support Internet-enabled

electronic commerce


Guidelines and Requirements - continuedE-Government

Government to Citizen (G2C)Government entities use the Internet and other e-

government capabilities to improve access and service delivery

At the simplest level, governments distribute information via the Internet, such as the schedule of public hearings or open hours at the library

At a second level, citizens engage their government in two-way dialogue, such as posting comments or requests and receiving feedback

At a still higher level, citizens conduct transactions with government over the Internet i.e. Filing tax forms or claims for unemployment benefits


Guidelines and Requirements – continuedE-Government – continued

Government to Business (G2B)Common government to business transactions include

electronic funds transfer (EFT) and electronic data interchange (EDI)

Under EDI, structured data is transmitted in lieu of documentsEDI takes the place of documents for activities such as

purchase orders and receiving reportsGovernment to Government (G2G)

Distribution of grants and shared revenues, and distributed posting of accounting data are among the intergovernmental activities that are executed electronically

G2G also includes filing of periodic compliance reports and shared, online training programs


Guidelines and Requirements – continuedTelework

Working from home or other remote locationsIntroduces new requirements for financial

management systemsImproves productivity due to fewer interruptionsAllows organizations to reduce cost by reducing the

need for office space and utilitiesPlays a role in continuity of operations

It may allow employees to remain productive despite natural disasters that impede travel to the central work site

Some organizations require extended telework (up to 30 days) as a preparedness exercise in the continuity of operations program.


Guidelines and Requirements – continuedTelework - continued

The most recent presidential directive on continuity of operations, signed in May 2007, calls for geographic dispersal of operations to increase survivability and maintain uninterrupted government in the event of enemy attack

Means for achieving decentralized operationsLegal requirement for federal agencies, and many

state and local governments have telework policiesManagers should consider the need for remote

connectivity and security when designing or upgrading financial management systems


Fraud PreventionAutomated Financial Systems

Can greatly increase governmental efficiencyUnfortunately, they also introduce new

opportunities for fraudAn entity’s internal control program should include

specific risk control procedures for financial systems, such as access controls and built-in edits

Organizational structure, such as separation of duties, can help prevent fraud

The IT department should be separate from the financial management department, however, this may not be possible in small entities


Fraud Prevention – continuedSome typical elements of prevention programs

Fraud Risk AssessmentIdentify the activities that pose the greatest potential and

risk for fraud, i.e. How great is the risk of receiving false electronic data from vendors? How does this compare to the risk of employees creating dummy

vendors in accounts payable? What controls are already in place to mitigate these risks?

Anti-fraud PoliciesA formal code of conduct, which frames the behavioral

expectations for individuals, is part of a fraud prevention program Other policies may address background screenings for new personnel

and required rotation of personnel out of high-risk positions


Fraud Prevention – continuedSome typical elements of prevention programs -

continuedEducation and Training

Employees at all levels are trained on the potential damage that could result from fraud, the code of conduct and expectations for ethical behavior and individual responsibilities for reporting suspicious behavior

MonitoringThis includes periodic test of the effectiveness of internal

controls and taking swift action when faced with suspected, fraudulent activity

A hotline for anonymous tips is an essential part of the monitoring program



Fraud Prevention – continuedSome typical elements of prevention programs

- continuedForensic Auditing

The term “forensic” implies that the results will be admissible as legal evidence

Forensic auditing combines the skills of auditors and accountants with investigative techniques

The many functions performed by forensic auditors include determining whether activities such as identity theft or employee theft have occurred

Forensic auditing techniques can also be used to minimize the risk of future loss

Fraud Prevention – continuedHaving a visible prevention program is

important to help reduce the risk of fraud but detection measures are needed

Data mining is increasingly used to detect fraudulent transactions

Data mining uses a supplementary computer module to detect suspicious patterns in data

Criteria used by the Government Accountability Office in a data mining project and related findings is shown in the following example


Data Mining CriteriaGovernment Purchase Card and Travel Card AuditsThe Government Accountability Office (GAO) reported on results of its data mining audit of use of government travel cards and charge cards. The GAO data mining software looked for suspicious transactions in several categories. The categories and examples of suspicious transactions are show below Nature of the Transaction

Prohibited merchant category codes, such as jewelry stores, pawn shops and gambling establishments

Personal use, including food, clothing, luggage and accessories Merchants

Specialty stores, such as hobby shops, sporting goods stores, Victoria’s Secret High-end stores, such as Dooney & Bourke, Coach and Louis Vuitton Gentlemen’s club and legalized brothels Cruise lines, sporting events, casinos, taxidermy services and theaters



Data Mining CriteriaGovernment Purchase Card and Travel Card Audits

- continued Dollar Amount of Transaction

Transactions having unusually high dollar amounts Convenience checks over $2,500 Numerous recurring transactions with same vendor, indicating the need for a

contract Transactions in round dollar amounts, such as $330, $440, etc., indicating

possible fee for cash schemes Timing of Transactions

Holiday and weekend transactions End of fiscal year transactions Transactions that were made late at night Multiple transactions on the same day, at same vendor, totaling more than $2,500

DefinitionERP systems attempt to integrate all data and

processes into a unified system to manage and access complex, interrelated activities.

Before conversion to an ERP, the organization must have systems for human resources and payroll, procurement, and accounting and accounts receivable

The goal of an ERP is to integrate the separate systems into one system that supports information process needs across the entity

Enterprise Resource Planning Systems(ERPs)

Enterprise Resource Planning Systems(ERPs) - continued

Definition - continuedKey Features

A common, shared databaseOne-time entry of shared dataAutomated integration and sharing of data across business

functionsA system can be considered an ERP if it integrates at least

two functions, although the term is typically used for large, broad-based applications integrating multiple functions

An ERP is usually not introduced all at once but rather two functions are initially integrated and then other functions are added as the project advancesi.e. start by integrating payroll and accounting and then later

add other functions like procurement and supply management

Definition - continued Typical ERP System

Uses multiple components of computer software and hardware to achieve the integration

Organizations usually rely on external consultants to help design, develop, implement and sustain ERP systems due to the size, complexity and cost of ERPs

Work processes are examined in detail to identify where they must be standardized and streamlined to create optimum flows of information

An ERP cannot succeed if work processes have not been reviewed and refined

A major challenge is getting various managers and workgroups to agree on common procedures

The front-end analysis and standardization of processes results in a systems requirements document i.e. the State of Ohio completed an ERP analysis that required 2,100

software capabilities



AdvantagesReduced cost, achieved by sharing of common data

across functionsReduced errors, achieved by reduction of manual data

entry and use of built-in edits Improved coordination across functional departments as

managers from various functions use standardized data Increased flexibility in report writing and query

capabilities Improved analysis and decisions making via real-time

access to enterprise-wide dataBuilt-in features that capture cost data for activity-

based costing and performance reporting


DisadvantagesMajor investment of time and money required to

implementGreater risk of loss (due to fraud or faulty

controls) associated with an entity-wide systemDifficulty of achieving agreement across functions

on common procedures and data elementsSizeable cost of employee training and retrainingEntity is “captive” to vendor for costs of future

upgrades and license feesPersonnel turnover during development and

implementation phase can jeopardize success


State of Ohio’s ERPOhio Administrative Knowledge System (OAKS)

Estimated Costs The cost to implement OAKS is approximately $158 million. Included costs

are project management consultant staff, the OAKS Program Management Office (PMO), ERP hardware and software, and ERP integrator services

Benefits Enhancing government operations requires business processes that are

efficient and effective. The benefits of implementing an ERP system range from intangible benefits, such as improved data to support decision-making, process efficiencies and improved service levels to more tangible hard dollar savings. Within five years of full implementation, Ohio expects to realize savings from such things as:

Leveraging the state’s purchasing power Increasing the use of vendor payment discounts Using bar coding to conduct physical inventories


State of Ohio’s ERPOhio Administrative Knowledge System (OAKS) -

continued Further Returns on Investment OHIO OAKS

Through a survey administered to state agencies, it was estimated that the state could save up to an additional $195 million in maintenance and replacement costs for current, redundant systems by implementing OAKS. When coupled with projected savings from the identified tangible benefits, OAKS represents significant direct and indirect savings over a five-year period. Full payback should occur within four years after all software modules have been implemented

Continuity of OperationsGeneral Concepts

Continuity of operations (COOP) refers to the efforts of an organization to ensure it can sustain essential operations regardless of planned or unplanned incidents. A comprehensive COOP program includes regular tests of response capability as well as the COOP planHas been part of the federal government since the

Cold WarContinuity of government orders issued by President

Eisenhower in the event of a nuclear attackNorth American Aerospace Defense Command (NORAD)

Continuity of Operations - continued

General Concepts - continuedA formal COOP program increases the odds that agencies can

continue the essential functions amid natural, technological or national security emergencies and COOP incidents may be large or contained and occur at several levelsMajor disruptions or attacks

9/11 Oklahoma City bombing Hurricane Katrina

Regional disruptions Closures due to blizzards Regional loss of electrical power

Building level events Fire Contaminated ventilation system Computer failure


General Concepts - continuedThe private sector also makes continuity of

operations a priority, however, public entities must be even more prepared for contingencies because they are responsible for maintaining civil order and basic infrastructure and for coordinating recovery efforts. Government officials are responsible for safeguarding sensitive informationSocial security numbersPayroll and tax informationDriver’s license numbers


General Concepts - continuedMany COOP plans focus on damage to property and

equipment, however, significant loss of personnel due to a biological attack or pandemics is an attendant threati.e. influenza could immobilize numerous government

personnel and vendorsSuch “nontraditional threats” require specific plans

California Office of Emergency Services created a document “Continuity of Operations/Continuity of Government and Pandemic Influenza Planning” to address an influenza pandemic. This document urges state and local entities to minimize person-to-person contact while maintaining essential operations


COOP Planning ObjectivesEnsure continued performance of essential functionsReduce loss of life and minimize damage to property

and infrastructureEnsure succession to key leadership positionsReduce/mitigate disruptions to governmental

operationsProtect public assets and confidential informationAchieve timely recovery of normal operations

(reconstitution)Assess response and identify lessons learned for

future planning


COOP Planning Objectives - continuedAgency plans should aim for restoration of

essential operations within a minimum period, such as 12 hours following activation of the plan. A further objective is ability to sustain the plan for a minimum duration. Many COOP plans call for a sustainability window for 30 days, but this may be insufficient in the case of a public health emergency. Finally, entities should be capable of implementing the COOP plan without warning.


COOP Planning ElementsThe details of COOP plans will vary among agencies,

however, common elements should be reflected. The following are COOP planning elements of the United States Department of Homeland SecurityEssential functions

Identify the agency’s essential functions that must continue with no or minimal disruption

Delegations of authorityPrepare documents that give officials, including those below

the agency head, authority needed to make difficult decisions during a COOP situation. Delegations of authority should specify the activities that those who are authorized to act on behalf of the agency head or other key officials may perform.


COOP Planning Elements - continuedSuccession planning

Create orders of succession that provide for the orderly and predefined assumption of senior positions during an emergency, in the event that current officials are unavailable to execute their duties.

Alternate facilitiesIf the COOP plan is activated, the agency’s primary

operating facilities may be damaged, destroyed or otherwise unavailable. Identify and prepare an alternate location and facility that can be used to carry out essential functions. Additional business continuity sites should be identified in case the alternate facility is rendered inoperable.


COOP Planning Elements - continuedAlternate and interoperable communications

Ensure COOP responders have an alternate communications system for performing essential functions until normal operations can be resumed. The communications system should be interoperable with other agencies and levels of government; permit access to data and systems; and be sustainable for a minimum number of days.

Vital records and databasesIdentify records and databases needed to continue

essential operations. This includes emergency records such as succession plans and delegations of authority. Create backup copies at an alternate location; ensure the alternate records are updated and maintained.


COOP Planning Elements - continued Human capital

During COOP activation, agencies must perform essential functions with reduced staff. Ensure key personnel are adequately trained and cross-trained to allow flexibility in performance of essential functions during emergencies.

Devolution and reconstruction Devolution planning supports the transfer of essential functions to other

agencies and staffs when the primary agency is incapable of performing its role either the primary or alternate facilities. Reconstitution is the process by which surviving and/or replacement personnel resume normal operations after the emergency; it maps the return to normal operations.

Test, training and exercise This portion of a COOP plan is often called TT&E. Agencies use ongoing

tests, training and exercises to ensure the COOP program is capable of supporting the continuation of essential functions. Tests and exercises range from simple, “table top” exercises to full simulations involving numerous personnel

Questions?

Steven H. Emerson, CPA, CGFM, CGAP, CFE, CITP, CGMA

P.O. Box 834Helena, AL 35080

(205) 807-4466(205) 449-8666 (Fax)[email protected]

mailto:[email protected]

http://www.shecpa.com/

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Exam 1 . Section VII Financial Management Responsibilities and Skills

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