Circular No. A-127
Revised
July 23, 1993
Circular No.
A-127--Revised
Transmittal Memorandum No. 1
TO THE
HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT:
Financial Management Systems
Circular No.
A-127 prescribes policies and standards for executive departments
and agencies to follow in developing, operating, evaluating, and
reporting on financial management systems. This Transmittal Memorandum
contains updated guidance which eliminates unnecessary overlap between
Circular No. A-127 and Circular A-123, "Internal Control Systems";
eliminates unnecessary overlap between Circular No. A-127 and with
Circular A-130, "Management of Federal Information Resources"; clarifies
terminology and definitions; updates the Circular for statutory
and policy changes; clarifies certain agency responsibilities; and
eliminates outdated guidance. This Circular replaces and rescinds
OMB Circular No. A-127 dated December 19, 1984. This Circular also
rescinds OMB memorandum M-85-10, "Financial Management and Accounting
Objectives" and M-85-16, "Guidelines for Evaluating Financial Management/Accounting
Systems."
Leon E. Panetta
Director
Attachment
Transmittal
Memorandum No. 1
TO THE HEADS
OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Financial
Management Systems
1. Purpose
2. Rescission
3. Authorities
4. Applicability and Scope
5. Definitions
6. Policy
7. Financial Management System Requirements
8. Financial Management System Improvements
9. Assignment of Responsibilities
10. Information Contact
11. Review Date
12. Effective Date
1. Purpose. OMB Circular No. A-127 (hereafter referred to
as Circular A-127) prescribes policies and standards for executive
departments and agencies to follow in developing, operating, evaluating,
and reporting on financial management systems.
2. Rescission. This Circular replaces and rescinds Circular
A-127 dated December 19, 1984. This Circular also rescinds OMB memorandum
M-85-10, "Financial Management and Accounting Objectives" and M-85-16,
"Guidelines for Evaluating Financial Management/Accounting Systems."
3. Authorities. This Circular is issued pursuant to the Chief
Financial Officers Act (CFOs Act) of 1990, P.L. 101-576 and the
Federal Managers' Financial Integrity Act of 1982, P.L. 97-255 (31
U.S.C. 3512 et seq.); and 31 U.S.C. Chapter 11.
4. Applicability and Scope.
a. The
policies in this Circular apply to the financial management systems
of all agencies as defined in Section 5 of this Circular. Agencies
not included in the CFOs Act are exempted from certain requirements
as noted in Section 9 of this Circular.
b. The
policies contained in OMB Circular No. A-130, "Management of
Federal Information Resources" (hereafter referred to as Circular
A-130) govern agency management of information systems. The
policies contained in Circular A-130 apply to all agency information
resources, including financial management systems as defined
in this Circular.
c. The
policies and procedures contained in OMB Circular No. A-123,
"Internal Control Systems," (hereafter referred to as Circular
A-123) govern executive departments and agencies in establishing,
maintaining, evaluating, improving, and reporting on internal
controls in their program and administrative activities. Policies
and references pertaining to internal controls contained in
this Circular serve to amplify policies contained in Circular
A-123 or highlight requirements unique to financial management
systems.
5. Definitions. For the purposes of this Circular, the following
definitions apply:
The term
"agency" means any executive department, military department,
independent agency, government corporation, government controlled
corporation, or other establishment in the executive branch of
the government.
The term
"information system" means the organized collection, processing,
transmission, and dissemination of information in accordance with
defined procedures, whether automated or manual. Information systems
include non- financial, financial, and mixed systems as defined
in this Circular.
The term
"financial system" means an 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; or
-- supporting
the preparation of financial statements.
A financial
system supports the financial functions required to track financial
events, provide financial information significant to the financial
management of the agency, and/or required for the preparation
of financial statements. A financial system encompasses automated
and manual processes, procedures, controls, data, hardware, software,
and support personnel dedicated to the operation and maintenance
of system functions. A financial system may include multiple applications
that are integrated through a common database or are electronically
interfaced, as necessary, to meet defined data and processing
requirements.
The term
"non-financial system" means an information system that supports
non-financial functions of the Federal government or components
thereof and any financial data included in the system are insignificant
to agency financial management and/or not required for the preparation
of financial statements.
The term
"mixed system" means an information system that supports both
financial and non-financial functions of the Federal government
or components thereof.
The term
"financial management systems" means the financial systems and
the financial portions of mixed systems necessary to support financial
management.
The term
"single, integrated financial management system" means a unified
set of financial systems and the financial portions of mixed systems
encompassing the software, hardware, personnel, processes (manual
and automated), procedures, controls and data necessary to carry
out financial management functions, manage financial operations
of the agency and report on the agency's financial status to central
agencies, Congress and the public. Unified means that the systems
are planned for and managed together, operated in an integrated
fashion, and linked together electronically in an efficient and
effective manner to provide agency-wide financial system support
necessary to carry out the agency's mission and support the agency's
financial management needs.
The term
"application (financial or mixed system)" means a group of interrelated
components of financial or mixed systems which supports one or
more functions and has the following characteristics:
-- a common
data base
-- common
data element definitions
-- standardized
processing for similar types of transactions
-- common
version control over software
The term
"financial event" means any occurrence having financial consequences
to the Federal government related to the receipt of appropriations
or other financial resources; acquisition of goods or services;
payments or collections; recognition of guarantees, benefits to
be provided, or other potential liabilities; or other reportable
financial activities.
The term
"work process" means a series of activities operating together
to achieve an end or desired result (mission, goal or objective).
A work process is a workflow or series of steps necessary for
the initiation, tracking and delivery of services or outputs.
The process reflects how resources are managed to deliver the
services or outputs and may cut across existing or future organizational
boundaries.
6. Policy. Financial management in the Federal government
requires accountability of financial and program managers for financial
results of actions taken, control over the Federal government's
financial resources and protection of Federal assets. To enable
these requirements to be met, financial management systems must
be in place to process and record financial events effectively and
efficiently, and to provide complete, timely, reliable and consistent
information for decision makers and the public.
The Federal
government's financial management system policy is to establish
government-wide financial systems and compatible agency systems,
with standardized information and electronic data exchange between
central management agency and individual operating agency systems,
to meet the requirements of good financial management. These systems
shall provide complete, reliable, consistent, timely and useful
financial management information on Federal government operations
to enable central management agencies, individual operating agencies,
divisions, bureaus and other subunits to carry out their fiduciary
responsibilities; deter fraud, waste, and abuse of Federal government
resources; and facilitate efficient and effective delivery of
programs through relating financial consequences to program performance.
In support
of this objective, each agency shall establish and maintain a
single, integrated financial management system that complies with:
-- applicable
accounting principles, standards, and related requirements as
defined by OMB and the Department of the Treasury;
-- internal
control standards as defined in Circular A-123 and/or successor
documents;
-- information
resource management policy as defined in Circular A-130 and/or
successor documents; and
-- operating
policies and related requirements prescribed by OMB, the Department
of the Treasury and the agency.
An agency's
single, integrated financial management system shall comply with
the characteristics outlined in Section 7 of this Circular.
7. Financial Management System Requirements. Agency financial
management systems shall comply with the following requirements:
a. Agency-wide
Financial Information Classification Structure. The design of
the financial management systems shall reflect an agency-wide
financial information classification structure that is consistent
with the U. S. Government Standard General Ledger, provides for
tracking of specific program expenditures, and covers financial
and financially related information. This structure will minimize
data redundancy, ensure that consistent information is collected
for similar transactions throughout the agency, encourage consistent
formats for entering data directly into the financial management
systems, and ensure that consistent information is readily available
and provided to internal managers at all levels within the organization.
Financial management systems' designs shall support agency budget,
accounting and financial management reporting processes by providing
consistent information for budget formulation, budget execution,
programmatic and financial management, performance measurement
and financial statement preparation.
b. Integrated
Financial Management Systems. Financial management systems shall
be designed to provide for effective and efficient interrelationships
between software, hardware, personnel, procedures, controls,
and data contained within the systems. In doing so, they shall
have the following characteristics:
-- Common
Data Elements. Standard data classifications (definitions and
formats) shall be established and used for recording financial
events. Common data elements shall be used to meet reporting
requirements and, to the extent possible, used throughout the
agency for collection, storage and retrieval of financial information.
Government-wide information standards (e.g., the U. S. Government
Standard General Ledger) and other external reporting requirements
shall be incorporated into the agency's standard data classification
requirements.
-- Common
Transaction Processing. Common processes shall be used for
processing similar kinds of transactions throughout the system
to enable these transactions to be reported in a consistent
manner.
-- Consistent
Internal Controls. Internal controls over data entry, transaction
processing and reporting shall be applied consistently throughout
the system to ensure the validity of information and protection
of Federal government resources.
-- Efficient
Transaction Entry. Financial system designs shall eliminate
unnecessary duplication of transaction entry. Wherever appropriate,
data needed by the systems to support financial functions
shall be entered only once and other parts of the system shall
be updated through electronic means consistent with the timing
requirements of normal business/transaction cycles.
c. Application
of the U. S. Government Standard General Ledger at the Transaction
Level. Financial events shall be recorded by agencies throughout
the financial management system applying the requirements of
the U.S. Government Standard General Ledger (SGL) at the transaction
level. Application of the SGL at the transaction level means
that the financial management systems will process transactions
following the definitions and defined uses of the general ledger
accounts as described in the SGL. Compliance with this standard
requires:
-- Data
in Financial Reports Consistent with the SGL. Reports produced
by the systems that provide financial information, whether used
internally or externally, shall provide financial data that
can be traced directly to the SGL accounts.
-- Transactions
Recorded Consistent with SGL Rules. The criteria (e.g., timing,
processing rules/conditions) for recording financial events
in all financial management systems shall be consistent with
accounting transaction definitions and processing rules defined
in the SGL.
-- Supporting
Transaction Detail for SGL Accounts Readily Available. Transaction
detail supporting SGL accounts shall be available in the financial
management systems and directly traceable to specific SGL
account codes.
Agencies
may supplement their application of the SGL to meet agency specific
information requirements in accordance with guidance provided
in the U.S. Government Standard General Ledger supplement to
the Treasury Financial Manual.
d. Federal
Accounting Standards. Agency financial management systems shall
maintain accounting data to permit reporting in accordance with
accounting standards recommended by the Federal Accounting Standards
Advisory Board (FASAB) and issued by the Director of OMB, and
reporting requirements issued by the Director of OMB and/or
the Secretary of the Treasury. Where no accounting standards
have been recommended by FASAB and issued by the Director of
OMB, the systems shall maintain data in accordance with the
applicable accounting standards used by the agency for preparation
of its financial statements. Agency financial management systems
shall be designed flexibly to adapt to changes in accounting
standards.
e. Financial
Reporting. The agency financial management system shall meet
the following agency reporting requirements:
-- Agency
Financial Management Reporting. The agency financial management
system shall be able to provide financial information in a timely
and useful fashion to (1) support management's fiduciary role;
(2) support the legal, regulatory and other special management
requirements of the agency; (3) support budget formulation and
execution functions; (4) support fiscal management of program
delivery and program decision making, (5) comply with internal
and external reporting requirements, including, as necessary,
the requirements for financial statements prepared in accordance
with the form and content prescribed by OMB and reporting requirements
prescribed by Treasury; and (6) monitor the financial management
system to ensure the integrity of financial data.
-- Performance
Measures. Agency financial management systems shall be able
to capture and produce financial information required to measure
program performance, financial performance, and financial
management performance as needed to support budgeting, program
management and financial statement presentation. As new performance
measures are established, agencies shall incorporate the necessary
information and reporting requirements, as appropriate and
feasible, into their financial management systems.
f. Budget
Reporting. Agency financial management systems shall enable
the agency to prepare, execute and report on the agency's budget
in accordance with the requirements of OMB Circular No. A-11(Preparation
and Submission of Budget Estimates), OMB Circular No. A-34 (Instructions
on Budget Execution) and other circulars and bulletins issued
by the Office of Management and Budget.
g. Functional
Requirements. Agency financial management systems shall conform
to existing applicable functional requirements for the design,
development, operation, and maintenance of financial management
systems. Functional requirements are defined in a series of
publications entitled Federal Financial Management Systems Requirements
issued by the Joint Financial Management Improvement Program
(JFMIP). Additional functional requirements may be established
through OMB circulars and bulletins and the Treasury Financial
Manual. Agencies are expected to implement expeditiously new
functional requirements as they are established and/or made
effective.
h. Computer
Security Act Requirements. Agencies shall plan for and incorporate
security controls in accordance with the Computer Security Act
of 1987 and Circular A-130 for those financial management systems
that contain "sensitive information" as defined by the Computer
Security Act.
i. Documentation.
Agency financial management systems and processing instructions
shall be clearly documented in hard copy or electronically in
accordance with (a) the requirements contained in the Federal
Financial Management Systems Requirements documents published
by JFMIP or (b) other applicable requirements. All documentation
(software, system, operations, user manuals, operating procedures,
etc.) shall be kept up- to-date and be readily available for
examination. System user documentation shall be in sufficient
detail to permit a person, knowledgeable of the agency's programs
and of systems generally, to obtain a comprehensive understanding
of the entire operation of each system. Technical systems documentation
such as requirements documents, systems specifications and operating
instructions shall be adequate to enable technical personnel
to operate the system in an effective and efficient manner.
j. Internal
Controls. The financial management systems shall include a system
of internal controls that ensure resource use is consistent
with laws, regulations, and policies; resources are safeguarded
against waste, loss, and misuse; and reliable data are obtained,
maintained, and disclosed in reports. Appropriate internal controls
shall be applied to all system inputs, processing, and outputs.
Such system related controls form a portion of the management
control structure required by Circular A-123.
k. Training
and User Support. Adequate training and appropriate user support
shall be provided to the users of the financial management systems,
based on the level, responsibility and roles of individual users,
to enable the users of the systems at all levels to understand,
operate and maintain the system.
l. Maintenance.
On-going maintenance of the financial management systems shall
be performed to enable the systems to continue to operate in
an effective and efficient manner. The agency shall periodically
evaluate how effectively and efficiently the financial management
systems support the agency's changing business practices and
make appropriate modifications.
8. Financial Management System Improvements. In improving
financial management systems, agencies shall follow the information
technology management policies presented in Circular A-130. In addition,
agencies shall comply with the following policies in designing,
developing, implementing, operating and maintaining financial management
systems:
a. Improvement
in Agency Work Processes. Designs for financial systems and mixed
systems shall be based on the financial and programmatic information
and processing needs of the agency. As part of any financial management
system design effort, agencies are to analyze how system improvements,
new technology supporting financial management systems, and modifications
to work processes can together enhance agency operations and improve
program and financial management. The reassessment of information
and processing needs shall be an integral part of the determination
of system's requirements. Process redesign shall be considered
an essential step towards meeting user needs in program management,
financial management, and budgeting. Concurrent with developing
and implementing integrated financial management systems, agencies
shall consider program operations, roles and responsibilities,
and policies/practices to identify related changes necessary to
facilitate financial management systems operational efficiency
and effectiveness.
b. Cost
Effective and Efficient Development and Operation of Financial
Management Systems. Financial management system development
and implementation efforts shall seek cost effective and efficient
solutions as required by Circular A-130. A custom software development
approach for financial management systems shall be used as a
last resort and only after consideration of all appropriate
software options, including the following:
-- use
of the agency's existing system with enhancements/upgrades,
-- use
of another system within the department/agency,
-- use
of an existing system at another department/agency,
-- use
of a commercial "off-the-shelf" software package,
-- use
of a system under development at another department, or
-- use
of a private vendor's service.
The cost
effectiveness of developing custom software shall be clear and
documented in a benefit/cost analysis that includes the justification
of the unique nature of the system's functions that preclude
the use of alternative approaches. This analysis shall be made
available to OMB for review upon request.
c. Cross
or Private Servicing. Cross servicing of financial system support,
where one agency or a division within an agency provides financial
management software and processing support to another agency
or division within an agency, or private servicing through commercial
vendors shall be used whenever feasible and cost effective,
as a solution to meet Federal government financial management
system needs. Agencies providing cross-servicing support shall
ensure that systems are maintained appropriately; fees for service
are reasonable; adequate conversion support is provided; procedures,
training and documentation are available and periodic service
reviews are conducted. Small agencies are particularly encouraged
to use cross-servicing to meet fundamental core financial and
payroll/personnel processing and reporting requirements.
d. Use
of "Off-the-Shelf" Software. GSA shall maintain the Financial
Management System Software (FMSS) Multiple Award Schedule for
vendors providing acceptable software which meets the core financial
system requirements as defined in the Core Financial System
Requirements document published by JFMIP and other applicable
accounting principles, standards, and related requirements as
defined by OMB for governmentwide use. Such software packages
will be "benchmarked," as appropriate, by an independent team
approved by the OMB Office of Federal Financial Management (OFFM)
or its designee to assure the software complies with such requirements.
Periodic recertification will be required to ensure that software
continues to support financial system requirements.
Agencies
replacing software to meet core financial system requirements
must use "off-the-shelf" software from the GSA FMSS Multiple
Award Schedule unless a waiver is granted under the Federal
Information Resources Management Regulations (FIRMR). Agencies
obtaining such a waiver must ensure the system, whether resulting
from a custom software development approach or from software
existing within or external to the agency, is "benchmarked"
by an independent team approved by OFFM or its designee.
Financial
management system software meeting requirements beyond the scope
of the Core Financial System Requirements document may also
be made available under the GSA FMSS Multiple Award Schedule
as agreed to by the OFFM or its designee.
e. Joint
Development of Software. Agencies with similar financial management
functions, after considering "off-the-shelf" software solutions,
are encouraged to undertake joint development efforts by pooling
resources and developing common approaches for meeting similar
financial functions. The designs for jointly developed software
shall contain the flexibility and other features needed for
transportability of the system to other agencies and/or cross-servicing.
f. Transfer
of Agency Financial Management Software. In cases where an agency
determines it is more efficient and effective to use or adopt
the software of another agency to meet its financial management
system requirements, the agency shall ensure the following:
- The
software meets the financial management system requirements
in Section 7 of this Circular.
- A formal
written agreement on the transfer of software is prepared
and approved by all parties. The agreement shall cover the
full scope of support services to be provided including system
modifications, maintenance and related costs;
- Any
necessary support requirements not covered in the agreement
shall be provided by the agency and such support, including
implementation support and training, shall be assessed and
determined to be adequate.
- An ongoing
relationship for determining future enhancements shall be
established between the parties involved.
Any compensation
arrangements for the transfer of the software shall conform
to Circular A-130 policies.
9. Assignment of Responsibilities.
a. Agency
Responsibilities. Agencies shall perform the financial management
system responsibilities prescribed by legislation referenced in
Section 3 "Authorities" of this Circular. In addition, each agency
shall take the following actions:
- Develop
and Maintain an Agency-wide Inventory of Financial Management
Systems.
Agencies
are required to maintain an inventory of existing and proposed
financial management systems. Annually CFOs Act agencies
will provide OMB with financial management system information
in compliance with the financial system planning guidance
issued by OMB for the Agency CFO 5-Year Financial Management
Plan. Financial management systems shall be included in
the agency information systems inventory following the information
system inventory policies established in OMB Circular A-130.
- Develop
and Maintain Agency-wide Financial Management System Plans.
Agencies
are required to prepare annual financial management systems
plans. These plans shall be developed in accordance with
OMB guidance issued annually. Financial management system
planning guidance for CFOs Act agencies shall be included
in the guidance for developing CFO Financial Management
5-Year Plans.
The
financial management systems strategies and tactical initiatives
included in the CFO Financial Management 5-Year Plan shall
be incorporated into the agency's five year information
systems plan prepared in compliance with Circular A-130.
Agencies
not covered by the CFOs Act shall prepare plans following
the CFO Financial Management 5- Year Plan guidance but are
not required to submit the plans to OMB. Financial management
system plans shall be an integral part of the agency's overall
planning process and updated for significant events that
result in material changes to the plan as they occur.
- Review
of Agency Financial Management Systems.
Each
agency shall ensure appropriate reviews are conducted of
its financial management systems. The results of these reviews
shall be considered when developing financial management
systems plans. OMB encourages agencies to coordinate and,
where appropriate, combine required reviews. Reviews must
comply with policies for (1) reviews of internal controls
undertaken and reported on in accordance with the guidance
issued by OMB for compliance with the requirements of the
Federal Managers' Financial Integrity Act (FMFIA) and Circular
A-123, (2) reviews of conformance of financial management
systems with the principles, standards and related requirements
in Section 7 of this Circular undertaken in accordance with
the guidance issued by OMB for compliance with requirements
of the FMFIA, and (3) reviews of systems and security as
required under provisions of Circular A-130.
- Develop
and Maintain Agency Financial Management System Directives.
Agencies
shall issue, update, and maintain agency- wide financial
management system directives to reflect policies defined
in this Circular.
b. GSA
Responsibilities. GSA is responsible for maintaining the FMSS
Multiple Award Schedule for Federal financial management software
and related services in accordance with guidance provided by
OMB.
10. Information Contact. All questions or inquiries should
be addressed to the Office of Federal Financial Management, Federal
Financial Systems Branch, telephone number 202/395- 6903.
11. Review Date. This Circular shall be reviewed three years
from the date of issuance to ascertain its effectiveness.
12. Effective Date. This Circular is effective immediately.
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