- Federal agencies are legally obligated to verify the legality of every payment through certifying officers and internal controls
- The Federal Managers Financial Integrity Act of 1982 requires agencies to maintain systems that prevent waste, fraud, and misappropriation
- Inspector generals serve as the internal audit mechanism, performing for individual agencies what GAO does for Congress
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Every federal department and agency carries the fundamental responsibility of ensuring that public funds are spent according to the terms of their authorization. This means confirming that an appropriation act exists with a defined purpose, time, and amount before any expenditure is made. Beyond this fundamental responsibility, agencies are legally obligated to maintain systems that verify payments and ensure that every dollar spent meets the standards set by federal law. The framework for doing so involves multiple layers of oversight, from internal certifying officers all the way up to congressional audits.
The Role of Certifying Officers
One of the key mechanisms for maintaining payment integrity is the agency certifying officer. After all transactions have been completed, from the initial purchase request through vendor negotiations, receipts, and documentation, the certifying officer steps in to perform a final review. This officer verifies that a legal authorization exists, that an appropriations act covers the expenditure, that there is an authorized need for the item or service, and that the transaction is ready for the Treasury Department to release funds. This role serves as a critical checkpoint in the spending process.
Internal Controls Under the Federal Managers' Financial Integrity Act
Executive agencies are responsible for establishing and maintaining both accounting systems and internal controls that meet U.S. code requirements. Under the Federal Managers Financial Integrity Act of 1982, agencies must implement internal control and administrative control systems that provide reasonable assurance in several key areas. These systems must ensure that obligations and costs comply with applicable law, that assets are safeguarded against waste and loss, that there is no misappropriation of funds, and that revenue and expenditures are properly accounted for.
The purpose behind these requirements is standardization. The goal is not to suggest that agencies are incapable of managing their finances, but rather to create a consistent process that works across all federal agencies. Every agency, regardless of its mission or size, follows the same fundamental framework for tracking goods, services, and appropriations.
GAO Standards and OMB A-123 Reviews
Agency internal control systems must align with GAO standards for internal control in the federal government. Reviews of these systems are conducted in accordance with Office of Management and Budget (OMB) guidelines, and results are reported annually through OMB Circular A-123 reviews. This circular, formally titled Management, Accountability and Control, provides the framework for how auditing teams evaluate agency operations.
An A-123 audit provides a comprehensive look at an agency's management structure, including its policies and procedures, the flow of financial activities, the levels of authorization and approval, and the processes for receiving and transacting goods and services. These reviews extend from the organizational level down to individual subunits, offering visibility into every layer of the budgeting and spending process.
The CFO Act and Annual Financial Statements
Agency Chief Financial Officers work alongside OMB to oversee financial management plans and programs. The CFO Act established the requirement for the preparation and audit of annual financial statements for executive branch agencies, meaning all agencies that fall under the president and the Office of Management and Budget. This structure allows agencies to develop standardized financial plans that OMB can consolidate and present to Congress.
In addition, the Secretary of the Treasury, in coordination with the Director of OMB, is required to annually prepare and submit to the president and Congress a financial statement covering the entire executive branch. This statement must be audited by GAO, adding another layer of accountability to the federal financial reporting process.
The Inspector General's Function
GAO conducts regular audits of the Secretary of the Treasury and all federal agencies under the executive office of the president. A key mechanism for carrying out this oversight is the inspector general system. Inspector Generals are positioned not only within GAO itself but within each individual agency. They are charged with conducting and supervising audits and investigations, promoting economy, efficiency, and effectiveness, and preventing and detecting fraud and abuse.
Within an agency, the inspector general performs the same function that the Comptroller General performs for Congress through GAO. This internal audit role allows agencies to conduct self-reviews and self-analysis, identifying challenges and issues before they surface in external congressional reviews. The inspector general serves as an early warning system, helping agencies correct problems internally rather than having them discovered during outside examinations.
