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OMB orders agencies to strengthen internal controls

OMB orders agencies to strengthen internal controls

by Rick Turoczy on January 11, 2005

The Office of Management and Budget has released new auditing rules that require agencies to review their internal controls over financial management, fix potential shortcomings and submit an annual report on their activities.

In the wake of the 2002 Sarbanes-Oxley Act, which calls for publicly held companies to obtain audits of their internal controls, government auditors and financial managers have debated whether they should follow suit. The Government Accountability Office is in the midst of rewriting its auditing guidelines, and held a meeting in late 2004 in which some auditors expressed concern that tightening federal auditing practices was unnecessary and resource-consuming. But senior GAO officials supported strengthening internal control audit requirements.

OMB sided with the faction supporting stricter rules. OMB Controller Linda Springer said effective internal controls were “the foundation of reliable financial reporting” in a press release accompanying the revised circular. GAO offers guidelines on auditing standards, while OMB’s rules are legally binding.

OMB, however, stopped short of adopting the full force of Sarbanes-Oxley provisions, which would have included requiring a separate audit opinion on internal controls. The new rules do, however, allow OMB to require agencies to obtain a separate opinion on their internal controls if they fail to fix identified internal control problems.

OMB orders agencies to strengthen internal controls

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