AGA Montgomery Chapter CGFM Exam Review
Presented By
Steven H. Emerson, CPA, CGFM, CGAP, CFE, CITP
 Information System
 Organized collection, processing, transmission and
dissemination of information in accordance with
defined procedures, whether automated or manual.
 Financial System
 Information system, comprised of one or more
applications, that is used for any of the following:
 Collecting, processing, maintaining, transmitting and
reporting data about financial events
 Supporting financial planning or budgeting activities
 Accumulating and reporting cost information
 Supporting the preparation of financial statements
Information system that supports both financial and
nonfinancial functions.
The financial systems and the financial portions of
mixed systems necessary to support financial
management.
 The Financial Systems Integration Office (FSIO) is the
successor to the Joint Financial Management Improvement
Program of the Federal Government (JFMIP).
 The FSIO financial management system requirements
 Collect accurate, timely, complete, reliable and consistent
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information
Provide for adequate agency management reporting
Support policy decisions
Support the preparation and execution of agency budgets
Facilitate the preparation of financial statements, and other
financial reports in accordance with accounting and reporting
standards
Provide information for budgeting, analysis and reporting,
including consolidated financial statements
Provide a complete audit trail to facilitate audits
 Maintaining the chart of accounts of the entity
 Maintaining the integrity of the accounting and reporting
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systems
Accounting for all financial transactions of the entity
Accounts payable
Travel reimbursement
Reporting on the financial results and the financial
condition of the entity
Monitoring budget execution
Monitoring operating performance
Managing financial assets, especially cash
Maintaining financial controls
 Budget formulation
 Payroll
 Credit management
 Debt collection
 Cost analysis
 Performance measurement
 Financial system development and operation
 Overall system management, consisting of accounting classification
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management and transaction control
General ledger management, consisting of general ledger account
definition, accruals, closing and consolidation, general ledger analysis
and reconciliation
Funds management, consisting of budget preparation, funds
allocation, budget execution and funds control
Receivables management, consisting of customer information
maintenance, receivable establishment, debt management and
collections and offsets
Payables management, consisting of payee information maintenance,
payment warehousing, execution, confirmation and follow-up
Cost management, consisting of cost setup and accumulation, cost
recognition, cost distribution and working capital revolving fund
Reporting, consisting of general reporting, external reporting, internal
reporting and ad hoc query
 An existing system may rely on computing technology
or software that is no longer supported by its producer
 The organization may have outgrown its existing
system(s) either in volume of transactions or in
number of activities
 New requirements may be imposed on the
organization that require different processes
 The organization may conclude that newer
applications will be more cost effective than older ones
 Gain an understanding both within and outside the
financial management organization that it (finance) is
the user of the system and what that entails
 Develop and strengthen the interface between the
system developer and the user activities
 Define user requirements
 Communicate and monitor user requirements
 It is vital that the financial manager communicate to
the software developer the needs of a financial
management software system. Items such as:
 Chart of accounts requirements
 Budgetary control
 Encumbrance
 Commitment
 Obligation
 Voucher
 Ideally, both the requirements group and the
development group need to be made up of accounting
and IT personnel.
The same as in developing financial management
systems.
 Gaining an understanding both within and outside the
financial management organization that it (finance) is
the user of the system and what that entails
 Developing and strengthening the interface among the
IT department, the purchasing function and other user
activities
 Defining user requirements
 Communicating and monitoring user requirements
 No COTS product will exactly meet all of the identified
requirements of a government
 Any COTS designed for the level of government of
interest will support the accomplishment of the
financial manager’s high-level objectives
 COTS will be successful only if the financial manager
adapts to the COTS system, which may require process
redesign or reengineering.
Some governments decide to augment their COTS
system with additional software or interfaces. This
should be avoided due to:
 Augmenting the COTS tends to increase the cost of
the project
 COTS vendors will not provide support for the
augmented software or interfaces
 Subsequent releases or updates to the software will
require updates to the augmented systems which will
add additional costs to the total project
 Within the federal government certain agencies offer
“cross-servicing” to other agencies on a fee-for-service
basis
 Private sector businesses offer processing services to
federal, state and local government agencies
 Benefits include:
 Avoidance of developmental and operational staff
 Assurance that hardware and software will remain
current as technology changes
 A concern is lack of flexibility
 Purchasers must accept the product provided by the
vendor
 Most cases do not have the ability to modify operations
 Many companies implemented Business Process
Reengineering (BPR) in the 1990s due to a spate of
publications including an article in the Harvard
Business Review by Michael Hammer
 BPR presents the concept that organizations should
eliminate functions that do not add value
 BPR should be properly implemented by starting at a
clean slate
 Organizations should not assume any process is
mandatory
 Organizations should envision the most effective and
efficient way to achieve the organization’s goals
 BPR lost some of its luster because critics accused it of
trying to increase productivity to maximum while
disregarding aspects such as work environment and
employee satisfaction
 BPR was also accused of being a technique for
downsizing
 Many very large organizations have adopted the
concepts of BPR, but they may not use the phrase
“BPR” in their organization
 Account Cleanup and Data Conversion
 Account Cleanup
 Requires research and analysis of all accounts that have not
been active to determine if they should be discontinued
 Balances of discontinued accounts should be transferred to
another account or written off
 Non-valid accounts should not be carried into the new
system
 Data Conversion
 Re-formatting data from the old system to the new
 A computer program can accomplish this
 New attributes may have to be entered manually
 Business Process Redesign
 The replacement or major modification of financial
management systems offers the opportunity to re-think
and re-design business processes
 In order to be successful, the redesigned business
processes must be implemented in parallel with system
changes
 In simplest terms, business process redesign:
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Mapping all activities in a process
Identifying activities that do not create value for elimination
Re-ordering of activities to a more logical stream
A computer may replace human intervention
 Change Management
 “Sometimes it’s easier to change people than it is to
change people”
 Changing staff is usually not an option and instead staff
must be made comfortable and productive in the new
environment
 Include all affected parties in the decision process
 People tend to buy into change in which they participate
 People who do the work tend to know more about the work
 Constant communication is important
 Most people do not react well to surprises
 Rejection at the worker level can undermine the best planned
and most expensive applications
 Work Force Planning
 Successful implementation of a new financial
management system will require a total rethinking of
what is required of the work force
 Senior management must assess what skills will be
required, the number of people with those skills and
how the organization will get to implementation of the
new system
 The U.S. Office of Personnel Management (OPM) has
developed a model that has components that may not be
appropriate to all organizations but provides a useful
checklist
 OPM Model Checklist
 Set strategic direction
 Organize and mobilize strategic partners
 Set vision/mission/values/objectives
 Review organizational structure
 Conduct business process reengineering
 Set measures for organizational performance
 Supply, demand and discrepancies
 Analyze permanent work force demographics
 Describe nonpermanent work force
 Conduct skills assessment and analysis
 OPM Model Checklist – continued
 Develop action plan
 Design a work force restructuring plan
 Develop ways to address skills gaps
 Set specific goals
 Implement action plan
 Communicate the plan
 Conduct recruitment and training
 Implement retention strategies
 Restructure where needed
 Conduct organizational assessments
 Monitor, evaluate and revise
 Assess effectiveness
 Adjust plan as needed
 Address new work force and organizational issues
Verification and Validation
 Verification that the system contains all of the processes
and outputs that are expected
 Validation that the computations and outputs and reports
are accurate and correct
 For small entities verification and validation would most
likely be done by the financial manager who is both the
sponsor of the project and the person responsible for the
outputs of the system
 For large projects a third party may perform the verification
and validation and this may be referred to as “Independent
Verification and Validation”
 Ownership of Systems
 In very small and very large organizations the entire
financial management systems are likely to be within
the financial management organization and the
question of who “owns” the system does not come up
 In many organizations the IT department owns the
hardware and provides a computing service to financial
management
 The finance department believes it owns the software and can
make modifications at will
 The IT department believes the software is its property
 Ownership should be made clear in the IT policy of the
organization
 Ownership of Data
 If IT happens to own both the hardware and software, IT should never
own the financial data
 Financial management must maintain stewardship over the data
 Stewardship of the data includes:
 Data integrity – the quality, timeliness and reliability of data in the system
 Data collection synchronization – how data collection cycles are timed and
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cutoff dates and times set so that necessary data-feeds between systems can
occur
Reduced data redundancy – eliminating multiple occurrences of the same data.
This is best accomplished by entering the data at the point where the transaction
is initiated
Data accessibility – ensuring that only authorized users can access the data
Data availability – managing the data that needs to be transferred or exchanged
between systems
Flexibility – ensuring that data collected by the system has enough inherent
flexibility so the system can adapt to change over time to meet new information
requirements and adopt new financial performance reporting measures
 Ownership of Data – continued
 Stewardship functions fall into four categories
 Data definition – defining what data requirements and
characteristics will be contained within the system
 Data creation and capture – defining how the data will be
collected in the records and reports
 Data usage – ensuring that data is being used in line with its
definition or that the definition is changed to reflect the
users’ needs through feedback to the data definition function
 Data assurance – attesting to data integrity through feedback
to the data creation and capture function
 Operational Issues
 Most critical operational issues between finance and IT
are scheduling and priorities
 Operational meetings should occur between finance
and IT to review and discuss past and future
performance
 The finance department must clearly communicate its
schedule requirements and seek priority for use of
computing resources
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Internal Controls – consist of five components
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The control environment – organizational factors such as integrity, ethical values,
competence, management philosophy and operating style. Tone of the organization
Risk assessment – identification and analysis of relevant risks and risk factors to the
organization and its objectives
Control activities – general controls such as data center, software and access controls and
application controls such as authorization, approval and segregation of duties. These
controls will be commensurate with the inherent nature of the information, the possible
consequences of errors, needed degree of reliability, cost-benefit of the control and
vulnerability of agency assets to loss or misuse
Information and communication – capturing pertinent information, financial and
nonfinancial, from a variety of systems and other sources and communicating it to
management on a regular basis
Monitoring – process of consistent and continuous monitoring of internal control systems
by managers as well as separate evaluations by independent auditors and reviewers
The establishment of internal controls is the responsibility of management
 Internal controls are subject to review by independent auditors
 Internal controls are an integrated part of the overall management process to promote
efficiency, reduce risk of asset loss and ensure reliability of financial information
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 Evaluation
 Organizations should conduct a cost-benefit analysis for
each financial management system to ensure:
 Alignment of system with organization’s mission needs
 Acceptability of information (internally and externally)
 Accessibility of information (internally and externally)
 Realization of projected benefits. Quantify improvements in
performance results through measurement of program
outputs
 Evaluation – continued
 Organizations should perform post-implementation
reviews and should address the following questions:
 How effective is the system in supporting the meeting of
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stated program objectives and performance targets?
How satisfied are the “customers” or “users” of the financial
system and its information – the needs assessment?
How efficiently does the system operate (in terms of
resources such as time, dollars and other resources) to
minimize resource consumption?
Does the system’s accomplishment of its objectives and
benefits outweigh cost and risk considerations?
How well does the system maintain its integrity throughout
the management cycle in terms of avoiding fraud and abuse?
 Historically administrative support systems have been
developed or acquired separately and then attempted
to “bridge” these separate systems together
 This “best of breed” approach has the advantage of
providing each component of the organization with
the best system for that component’s individual needs
 Enterprise Resource Planning systems or ERPs have
recently been developed to offer large-scale integrated
administrative support systems
 ERPs have the advantage of universal compatibility and
end-to-end processing
 Flexibility is lacking and while the ERP will not fulfill
anybody’s wish list, the enterprise-wide benefits may
drive the separate components of the organization to
alter their business processes to accommodate the ERP