This is the accessible text file for GAO report number GAO/AIMD-00-
21.3.1 entitled 'Standards for Internal Control in the Federal 
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United States Government Accountability Office: 

Internal Control: 

November 1999: 

Standards for Internal Control in the Federal Government: 



Federal policymakers and program managers are continually seeking ways 
to better achieve agencies' missions and program results, in other 
words, they are seeking ways to improve accountability. A key factor 
in helping achieve such outcomes and minimize operational problems is 
to implement appropriate internal control. Effective internal control 
also helps in managing change to cope with shifting environments and 
evolving demands and priorities. As programs change and as agencies 
strive to improve operational processes and implement new 
technological developments, management must continually assess and 
evaluate its internal control to assure that the control activities 
being used are effective and updated when necessary. 

The Federal Managers' Financial Integrity Act of 1982 (FMFIA) requires 
the General Accounting Office (GAO) to issue standards for internal 
control in government. The standards provide the overall framework for 
establishing and maintaining internal control and for identifying and 
addressing major performance and management challenges and areas at 
greatest risk of fraud, waste, abuse, and mismanagement. Office of 
Management and Budget (OMB) Circular A-123, Management Accountability 
and Control, revised June 21, 1995, provides the specific requirements 
for assessing and reporting on controls. The term internal control in 
this document is synonymous with the term management control (as used 
in OMB Circular A-123) that covers all aspects of an agency's 
operations (programmatic, financial, and compliance). 

Recently, other laws have prompted renewed focus on internal control. 
The Government Performance and Results Act of 1993 requires agencies 
to clarify their missions, set strategic and annual performance goals, 
and measure and report on performance toward those goals. Internal 
control plays a significant role in helping managers achieve those 
goals. Also, the Chief Financial Officers Act of 1990 calls for 
financial management systems to comply with internal control 
standards, and the Federal Financial Management Improvement Act of 
1996 identifies internal control as an integral part of improving 
financial management systems. 

Rapid advances in information technology have highlighted the need for 
updated internal control guidance related to modern computer systems. 
The management of human capital has gained recognition as a 
significant part of internal control. Furthermore, the private sector 
has updated its internal control guidance with the issuance of 
Internal Control--Integrated Framework, published by the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO). 
Consequently, we have developed this standards update which supersedes 
our previously issued "Standards for Internal Controls in the Federal 

This update gives greater recognition to the increasing use of 
information technology to carry out critical government operations, 
recognizes the importance of human capital, and incorporates, as 
appropriate, the relevant updated internal control guidance developed 
in the private sector. The standards are effective beginning with 
fiscal year 2000 and the Federal Managers Financial Integrity Act 
reports covering that year. 

We appreciate the efforts of government officials, public accounting 
professionals, and other members of the financial community and 
academia who provided valuable assistance in developing these 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 

[End of foreword] 


The following definition, objectives, and fundamental concepts provide 
the foundation for the internal control standards. 

Definition and Objectives: 

Internal Control: 
An integral component of an organization's management that provides 
reasonable assurance that the following objectives are being achieved: 

* effectiveness and efficiency of operations, 

* reliability of financial reporting, and, 

* compliance with applicable laws and regulations. 

Internal control is a major part of managing an organization. It 
comprises the plans, methods, and procedures used to meet missions, 
goals, and objectives and, in doing so, supports performance-based 
management. Internal control also serves as the first line of defense 
in safeguarding assets and preventing and detecting errors and fraud. 
In short, internal control, which is synonymous with management 
control, helps government program managers achieve desired results 
through effective stewardship of public resources. 

Internal control should provide reasonable assurance that the 
objectives of the agency are being achieved in the following 

* Effectiveness and efficiency of operations including the use of the 
entity's resources. 

* Reliability of financial reporting, including reports on budget 
execution, financial statements, and other reports for internal and 
external use. 

* Compliance with applicable laws and regulations. 

A subset of these objectives is the safeguarding of assets. Internal 
control should be designed to provide reasonable assurance regarding 
prevention of or prompt detection of unauthorized acquisition, use, or 
disposition of an agency's assets. 

Fundamental Concepts: 

Internal Control: 

* A continuous built-in component of operations. 

* Effected by people. 

* Provides reasonable assurance, not absolute assurance. 

The fundamental concepts provide the underlying framework for 
designing and applying the standards 

Internal Control Is a Continuous Built-in Component of Operations: 

Internal control is not one event, but a series of actions and 
activities that occur throughout an entity's operations and on an 
ongoing basis. Internal control should be recognized as an integral 
part of each system that management uses to regulate and guide its 
operations rather than as a separate system within an agency. In this 
sense, internal control is management control that is built into the 
entity as a part of its infrastructure to help managers run the
entity and achieve their aims on an ongoing basis. 

Internal Control Is Effected by People: 

People are what make internal control work. The responsibility for 
good internal control rests with all managers. Management sets the 
objectives, puts the control mechanisms and activities in place, and 
monitors and evaluates the control. However, all personnel in the 
organization play important roles in making it happen. 

Internal Control Provides Reasonable Assurance, Not Absolute Assurance: 

Management should design and implement internal control based on the 
related cost and benefits. No matter how well designed and operated, 
internal control cannot provide absolute assurance that all agency 
objectives will be met. Factors outside the control or influence of 
management can affect the entity's ability to achieve all of its 
goals. For example, human mistakes, judgment errors, and acts of 
collusion to circumvent control can affect meeting agency objectives. 
Therefore, once in place, internal control provides reasonable, not 
absolute, assurance of meeting agency objectives. 

[End of section] 

Internal Control Standards: 

Presentation of the Standards: 

The Five Standards for Internal Control: 

* Control Environment, 

* Risk Assessment, 

* Control Activities, 

* Information and Communications, 

* Monitoring. 

These standards define the minimum level of quality acceptable for 
internal control in government and provide 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 an integral part of operations. 

In the following material, each of these standards is presented in a 
short, concise statement. Additional information is provided to help 
managers incorporate the standards into their daily operations. 

Control Environment: 

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. 

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. 

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. 

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. 

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. 

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 

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. 

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. 

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, Inspectors General and internal senior 
management councils can contribute to a good overall control 

Risk Assessment: 
Internal control should provide for an assessment of the risks the 
agency faces from both external and internal sources. 

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. 

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 entitywide 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 

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. 

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. 

Control Activities: 

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. 

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. 

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 

Activities may be classified by specific control objectives, such as 
ensuring completeness and accuracy of information processing. 

Examples of Control Activities: 

* Top level reviews of actual performance, 

* Reviews by management at the functional or activity level, 

* Management of human capital, 

* Controls over information processing, 

* Physical control over vulnerable assets, 

* Establishment and review of performance measures and indicators, 

* Segregation of duties, 

* Proper execution of transactions and events, 

* Accurate and timely recording of transactions and events, 

* Access restrictions to and accountability for resources and records, 

* Appropriate documentation of transactions and internal control. 

There are certain categories of control activities that are common to 
all agencies. Examples include the following: 

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. 

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 

Management of Human Capital: 

Effective management of an organization's workforce--its human 
capitall--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. 

Controls Over Information Processing: 

A variety of control activities are used in information processing. 
Examples include edit 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 

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. 

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. 

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. 

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. 

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. 

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. 

Appropriate Documentation of Transactions and Internal Control: 

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. 

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. 

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. 

Control Activities Specific for Information Systems: 

* General Control; 

* Application Control. 

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. 

General Control: 

This category includes entitywide security program planning, 
management, control over data center operations, system software 
acquisition and maintenance, access security, and application system 
development and maintenance More specifically: 

* 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 set-up and 
scheduling procedures and controls over operator activities. 

* 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. 

* 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. 

* 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. 

Application Control: 

This category of control is designed to help 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 
are 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. 

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. 

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. 

Information and Communications: 

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 

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. 

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 

Effective communications should occur in a broad sense with 
information flowing down, across, and up the organization. In 
additional to internal communications, management should ensure 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. 


Internal control monitoring should assess the quality of performance 
over time and ensure that the findings of audits and other reviews are 
promptly resolved. 

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 

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. 

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 (1) promptly evaluate findings from 
audits and other reviews, including those showing deficiencies and 
recommendations reported by auditors and others who evaluate agencies’
operations, (2) determine proper actions in response to findings and 
recommendations from audits and reviews, and (3) complete, within 
established time frames, all actions that correct or otherwise resolve 
the matters brought to management’s attention. The resolution process 
begins when audit or other review results are reported to management, 
and is completed only after action has been taken that (1) corrects 
identified deficiencies, (2) produces improvements, or (3) 
demonstrates the findings and recommendations do not warrant 
management action. 

[End of section] 

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