Sarbanes-Oxley for feds?

Officials will unveil new governmentwide guidance on federal agencies' assurances of financial management integrity before January, said Linda Springer, the Office of Management and Budget's controller.

The new regulations, which will become mandatory in fiscal 2006, will govern "everything that generates entries into your financial statement," Springer said. That includes "data going into the system, the way the system functions itself and then data coming out of the system into the [year-end] reports themselves."

OMB officials want to ensure the reliability of financial statements, Springer said.

The stricter standards will be printed in OMB circular A-123, Springer said. The circular governs implementation of the Federal Managers' Financial Integrity Act, which requires agency officials to annually report the effectiveness of their internal accounting and administrative controls.

If agencies do not comply with the act, they could become the subject of independent audits, Springer said.

An implementation guide will be released early next year to give agency officials most of 2005 to implement documentation and testing processes, Springer added.

The need for stronger guidance about financial reporting emerged after a joint committee of OMB, the CFO Council and members of the President's Council on Integrity and Efficiency evaluated corporate reporting requirements created by the Sarbanes-Oxley Act of 2002.

A side-by-side comparison of federal financial reporting regulations with corporate standards created by the act showed that "management needed to strengthen its documentation procedures, government managers needed to strengthen their testing of the controls and, in some cases, actually add additional controls," Springer said.

The gap analysis comparison was limited to section 404 of Sarbanes-Oxley, she added. That section deals specifically with internal financial control management and audit requirements. Other provisions of Sarbanes-Oxley, such as further criminalization of reporting fraud, aren't being added, she said. Agency leaders, who must certify the year-end control management control reports, will not be imprisoned for failure to comply, she said.

In addition, Springer said, federal officials are not increasing the number of false financial reports that prompted Congress to pass stricter control requirements two years ago. "We don't have a Wall Street investment community that puts pressure on a bottom line," she said. "Our risk factors are more in the nature of waste and abuse. But not the kind of fraud you saw in the Enrons of the world."

With the revised circular, agency officials will immediately be able to eliminate improper payments, Springer said. "If you have better control over what you're doing, financially, that should allow you to catch and eliminate the improper payments." OMB officials are also preparing a report on the magnitude of that problem, she added.

The new guidelines should also boost agency strategic planning. Better financial reporting will improve understanding of agency costs. "That should lead to having better information and better informed decision in planning," Springer said.

Springer said she plans to return to the private sector at the end of January, after two-and-a-half years in government. Her resignation is not "for lack of energy or motivation or interest, it's just that, frankly, I don't get to spend time with family except on weekends," she said. "It's been a privilege to be part of this administration.