State Assessment of Internal Controls Final Report, May 2007
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I. INTRODUCTION
In response to the Improper Payments Information Act (IPIA) of 2002 and guidance from the Office of Management and Budget (OMB), the Child Care Bureau (CCB) launched the project: Measuring Improper Payments in the Child Care Program. The purpose of this project is to identify and describe methods that could help States identify, measure, and minimize errors in the administration of the Child Care and Development Fund (CCDF).
This report describes the development and pilot of the State Internal Control Self-Assessment Instrument (Instrument). This report highlights the background and objectives, the potential benefits to States and Federal Staff, and the methodology used to develop and implement the pilot in Kansas, the initial pilot State. The major part of this report focuses on nine additional pilot States and includes lessons learned and associated costs from implementing the Instrument.
Since 2003, the Child Care Bureau (CCB) has taken a systematic approach to addressing the issue of improper payments in the Child Care Development Fund (CCDF). The CCB has examined the policies and practices in 11 partner States, conducted an error rate pilot in nine States, and analyzed associated pilot costs. The current pilot examines the feasibility of implementing an Instrument to assist States in identifying potential gaps and problems within their State Child Care Programs.
In 2004, the Government Accountability Office (GAO) issued a report describing the strategies implemented by 16 States to address improper payments in the CCDF and Temporary Assistance for Needy Families (TANF) block grant programs. The GAO studied what States were doing to manage improper payments and how the U.S. Department of Health and Human Services (HHS), which oversees the TANF and CCDF programs, helps States identify and address improper payments in these programs. The GAO concluded that “HHS lacks adequate information to assess risk and assist States in managing improper payments.”4
The GAO report, The Improper Payments Information Act of 2002, the President’s Management Agenda goal of “Improved Financial Performance,” related OMB guidance, and recommendations from the President’s Council on Integrity and Efficiency5 all stress that Federal and State agencies should prioritize the creation of an effective control environment within their programs using resources and incentives to support this effort. According to GAO, HHS needs mechanisms to gather information on State internal control activities, including steps that States take to minimize or eliminate risks, in order to detect and prevent errors that could result in improper payments.
B. Objectives for Developing a Process to Examine State Internal Controls
GAO identifies assessing internal controls as an important strategy to assist States in efforts to prevent errors that could result in improper payments. Assessment of risk through an internal control self-assessment process is an activity that entails a comprehensive review and analysis of program operations to determine where risks exist, identify those risks, and then measure the potential or actual impact of those risks on program operations. The information gathered from this assessment can be used to determine the nature and type of corrective actions needed, and provides baseline information for measuring progress in reducing errors that could result in improper payments.
In response to the GAO directive, the CCB organized a Federal/State team that included CCB staff from central and regional offices, the State of Kansas, and Walter R. McDonald & Associates, Inc. (WRMA) to draft an approach to address internal controls, using GAO’s Internal Control Management and Evaluation Tool as a model.
The CCB views the Instrument as a promising tool for both State and Federal managers. The Instrument can provide the CCB and States with a systematic method for reviewing and documenting the adequacy of a State’s internal control system, identifying internal control weaknesses, and providing documentation of findings and possible corrective actions.
This report describes the development of an Instrument to assess the adequacy of internal controls and to identify issues that may contribute to errors in the administration of the Child Care and Development Fund (CCDF). The following chapter describes the benefits of using the Instrument for staff in States and ACF Regional Offices.
4Government Accountability Office. (June 2004.) TANF and child care programs: HHS lacks adequate information to assess risk and assist States in managing improper payments. (GAO Publication No. GAO–04–723). Washington, DC: U.S. Government Printing Office. return to text
5Full descriptions of strong internal control environments are provided in OMB Circular A-123, Management’s Responsibility for Internal Control (December 21, 2004), available at http://www.whitehouse.gov/omb/circulars/a123/a123_rev.pdf and Standards for Internal Control in the Federal Government (November 1999), available at http://www.gao.gov/special.pubs/ai00021p.pdf. return to textPrevious Page | Table of Contents | II. POTENTIAL USES BY STATE AND FEDERAL STAFF >>