The Small Business Administration's Second-Year Implementation of the Federal Managers' Financial Integrity Act

RCED-86-24: Published: Oct 18, 1985. Publicly Released: Oct 18, 1985.

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GAO evaluated the Small Business Administration's (SBA) implementation of the Federal Managers' Financial Integrity Act (FMFIA) to determine: (1) the progress it has made to identify and correct internal control weaknesses and to evaluate systems of internal controls; (2) whether SBA accounting systems and evaluations conform to GAO requirements; and (3) the accuracy and completeness of the Administrator, SBA, annual report on internal controls and accounting systems.

GAO found that SBA has: (1) reported the correction of 6 of the 17 material internal control weaknesses which it identified in 1984; (2) made progress in implementing corrective actions pertaining to the 16 material weaknesses it identified in 1983; (3) implemented corrective actions pertaining to 40 of the 225 weaknesses that were not categorized as material; and (4) implemented a follow-up system, in accordance with Office of Management and Budget (OMB) guidelines, to keep track of actions taken to correct material weaknesses. In addition, GAO found that: (1) the internal control reviews (ICR) completed in 1984 were generally in accordance with OMB guidelines; and (2) the SBA computerized ICR system provided a good basis for reviewing internal controls at field offices where most SBA programs are delivered. However, GAO found that SBA has not adequately reviewed its automatic data processing (ADP) controls because testing was not performed and guidelines were not issued on how to evaluate ADP controls. Finally, although the annual report stated that two of the six SBA accounting systems were in conformance with the Comptroller General's principles, standards, and requirements, GAO believes that the report was misleading because it failed to: (1) disclose that the two systems accounted for less than 5 percent of the funds accounted for by SBA; and (2) clearly identify and summarize accounting system weaknesses.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Additional staff have been given the responsibility for accounting system evaluations.

    Recommendation: The Administrator, SBA, should provide for increased staff involvement in accounting system reviews to the extent resources permit.

    Agency Affected: Small Business Administration

  2. Status: Closed - Implemented

    Comments: SBA revised the guidelines to be used in future reviews of accounting systems.

    Recommendation: The Administrator, SBA, should coordinate planned internal control and accounting system reviews to ensure that all key accounting system internal controls are evaluated. Such evaluation is needed to support a statement regarding the degree of a system's conformance with the Comptroller General's principles, standards, and related requirements.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: SBA revised the guidelines for future reviews of accounting systems.

    Recommendation: The Administrator, SBA, should expand SBA guidelines to include detailed steps for testing its accounting systems in operation and evaluating the ADP aspects involved. In addition, SBA should expand its guidelines to provide for examining conformance with titles 4, 5, and 7 of the GAO Policy and Procedures Manual for Guidance of Federal Agencies and with related requirements, such as those found in the Treasury Financial Manual and OMB circulars.

    Agency Affected: Small Business Administration

  4. Status: Closed - Implemented

    Comments: Training was completed and a plan was developed in mid-1986.

    Recommendation: The Administrator, SBA, should provide SBA managers with training on how to evaluate ADP controls and, where necessary, ADP technical assistance, to assist them in their assessments.

    Agency Affected: Small Business Administration

  5. Status: Closed - Implemented

    Comments: The ADP Administration developed and implemented a plan for evaluating ADP controls in mid-1986.

    Recommendation: The Administrator, SBA, should issue guidelines describing what ADP controls are, who should evaluate them, and how to evaluate them.

    Agency Affected: Small Business Administration

  6. Status: Closed - Implemented

    Comments: The ADP Administration developed and implemented an ADP plan in mid-1986.

    Recommendation: The Administrator, SBA, should require the Director, Office of Computer Sciences, to ensure that ADP controls are evaluated in accordance with OMB and SBA guidelines.

    Agency Affected: Small Business Administration

  7. Status: Closed - Implemented

    Comments: SBA issued a new internal control system standard operating procedure that provides more definitive guidance for documenting ICR.

    Recommendation: The Administrator, SBA, should ensure that ICR are performed in accordance with OMB and SBA guidelines. Specifically, the internal control reviewers should be required to develop documentation to support the basis for the conclusions reached and the amount of testing done.

    Agency Affected: Small Business Administration

  8. Status: Closed - Implemented

    Comments: In future reviews/certifications, SBA plans to more accurately describe the scope of assurance given, more accurately present material in the report, use consistent terminology, and identify the extent of review in quantitative terms.

    Recommendation: The Administrator, SBA, should describe accurately the scope of assurance given and known system weaknesses in future FMFIA reports. For example, the report should include an indication of accounting system size, such as the number of dollars involved, use consistent terminology throughout, and summarize accounting system weaknesses. In addition, systems that have not been adequately evaluated should not be reported in conformance with the Comptroller General's requirements.

    Agency Affected: Small Business Administration

 

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