Goal 6.0 DELIVER EFFICIENT, EFFECTIVE, AND RESPONSIVE BUSINESS SYSTEMS AND RESOURCES THAT ENABLE THE SUCCESSFUL ACHIEVEMENT OF THE LABORATORY MISSION(S)
Appendix B Self-Evaluation FY2006, Volume 2

Objective 6.1 – Provide Efficient, Effective, and Responsible Financial Management System

The overall performance (outcomes/results) of the following set of performance measures (tasks, activities, requirements, accomplishments, and/or milestones) shall be utilized by evaluators as the primary measure of the Contractor’s success in meeting this Objective and for determining the numerical score awarded. The evaluation of this Objective may also consider other tasks, activities, requirements, accomplishments, and/or milestones not otherwise identified below but that provide evidence to the effectiveness/performance of the Contractor in meeting this Objective. The weight of this Objective is 25%.

Determination of the Contractor’s provision of a sound, responsive, and economical financial management system(s) will be based upon the implementation of the directions, guidelines, and recommendations of OMB Circular A-123 by the Department of Energy (DOE), which assesses management responsibility in determining sound financial management systems and internal control performance. In measuring the performance of this Objective, the DOE evaluator(s) shall consider the following:

Demonstration of efficient and effective financial management system(s) support through the establishment of a Senior Assessment Team by the Contractor;
The overall assessment of the design and operation of internal controls over financial reporting;
The continual improvement of financial management system(s) through the Contractor’s evaluation of internal control at the Entity Level by its use of the five components of internal control;
The degree of knowledge and appropriate utilization of established system processes/ procedures by Contractor management and staff, as displayed by the Contractor’s evaluation of internal control at the process, transaction or application level; and
A reliance on the work of others to accomplish assessments for the determination of the financial management system(s) effectiveness, as validated by internal and external audits and reviews.

SLAC Self-Evaluation: As soon as SLAC received the DOE guidance in mid-January 2006 on OMB Circular A-123 implementation, SLAC proceeded immediately to establish the Senior Assessment Team which includes the functional managers for Human Resources, Purchasing, Property, Business Systems, Budget, and Accounting; the senior financial manager of each of the SLAC Directorate; Director of Stanford University Internal Audit; and SLAC’s Chief Financial Officer.

Led by the Senior Assessment Team, SLAC followed the DOE A-123 implementation guidance in evaluating the internal controls over financial reporting. The internal controls at the entity level were assessed by subcategory within each of the five areas which included control environment, control activities, information and communication, risk assessment, and monitoring. These entity controls were documented, assessed for inherent risks, and evaluated for control design effectiveness. The financial system key processes and sub-processes were also assessed for their inherent risks, and the associated internal controls in place were also documented and evaluated for control design effectiveness. The assessment did not identify any entity control or sub-processes control to be requiring “Initial Remediation”. The results were recorded in the A-123 Assessment and Reporting Tool (AART) spreadsheets and submitted to DOE-CH.

Stanford Internal Audit was responsible in the preparation of the “Testing Plan” and conducted the testing required under the DOE Guidance for A-123 Implementation. The testing of all high risk line-items was completed in FY06 before the Sep 1, 2006 milestone. In addition, Stanford Internal Audit completed testing of all of the medium and low risk line-items for the Enterprise Resource Management key processes and sub-processes, and many of the controls for Entity Control and the other processes. SLAC receive a “pass” rating for control effectiveness for all the internal control line-items tested.

6.1a Demonstrate an effective financial management system through a reliance on the work of others to accomplish assessment, such as external reviews, surveys and inspections.

To meet the target level of performance for demonstrating an effective financial management system through a reliance on the work of others requires verifiable documentation from external reviews by the Inspector General (IG), Government Accountability Office (GAO), or other external audit/review organization. The review results must state that the Contractor’s financial management system has been evaluated, and has no notable areas of diminished performance identified. General comments in the audit or letter report would be accepted in the definition of a clean audit result, provided that any financial management system weaknesses identified have little or no potential to adversely impact the mission of the Laboratory.

SLAC Self-Evaluation: During FY06, Stanford Internal Audit conducted the following reviews associated with the financial management system. All reviews have no notable areas of diminished performance, but some of them did identify opportunities for process improvement.

FY05 Allowable Cost Review

FY05 OMB Circular A-133 Review

PeopleSoft Application Security Review

High Level Review of Internal Controls at SLAC

OMB CircularA-123 Testing of Internal Controls for Human Resources and Payroll (in progress)

Accounts Payable Review for A-123 (in progress)

Although there were two other reviews, in progress in FY06, being conducted by the Defense Contract Audit Agency (DCAA) that involved SLAC, they were not specifically focused on internal controls.

6.1b The Contractor’s success in developing and completing corrective actions for reviews in accordance with approved Corrective Action Plans (CAPs) shall be determined by an evaluation of the Contractor’s use of the OMB Circular A-123 five (5) components of Internal Control, i.e.: (1) the Control Environment; (2) Risk Assessment; (3) Control Activities; (4) Information and Communication; and (5) Monitoring.

To meet the target level of performance for developing and completing corrective actions for reviews in accordance with approved Corrective Action Plans (CAPs) requires verifiable documentation that the Contractor has implemented OMB Circular A-123 recommended actions.

SLAC Self-Evaluation: There was no Corrective Action Plan required for the OMB Circular A-123 testing of internal controls for financial reporting performed by Stanford Internal Audit. All line-items reviewed received the “pass” rating.

6.1c The Contractor’s success in meeting financial management goals and expectations is determined by an overall assessment of the design and operation of internal controls over financial reporting.

To meet the target level of performance for financial management goals and expectations requires verifiable documentation that the Contractor has performed an overall assessment of the design and operation of internal controls over financial reporting, in accordance with DOE’s Contractor requirements for A-123 implementation.

SLAC Self-Evaluation: Stanford Internal Audit performed an overall assessment of the design and operation of internal controls over financial reporting. As noted in Section 6.1a, six specific reviews were conducted in FY06. All high-risk line items and some of the medium and low-risk items in the AART assessment spreadsheets for Entity Control (ECS-Assess) and Process Control (PCS-Assess) were tested. In accordance to the DOE A-123 implementation guidance, Stanford Internal Audit recorded, in the AART testing spreadsheets for Entity Control (ECS-Test) and Process Control (PCS-Test), details of the testing, including test description, sample size, criteria for sample used for testing/ result, and location of supporting documentation.

6.1d Employee and Management awareness of financial management processes and procedures as displayed by the Contractor establishment and performance of a Senior Assessment Team.

To meet the target level of performance for employee and management awareness of financial management processes and procedures, the Contractor must provide verifiable documentation that the Contractor has implemented four (4) of the six (6) OMB Circular A-123 recommended actions for establishing a Senior Assessment Team, and that it has performed assessment work for the organization.

SLAC Self-Evaluation: Following the DOE OMB Circular A-123 implementation guidance, the SLAC Director established the Senior Assessment Team (SAT). To ensure that the assessment objectives are clearly communicated throughout the organization, the team includes the functional managers for Human Resources, Purchasing, Property, Business Systems, Budget, and Accounting, the senior financial manager of each of the SLAC Directorate, Director of Stanford University Internal Audit, and the Chief Financial Officer. The team is also responsible for making the appropriate resources available to carry out the objectives. SLAC staff performs the assessment and the Stanford Internal Audit Department provides the staffing for all testing. The assessment was carried out in a thorough, effective, and timely manner following the DOE implementation guidelines and requirements. The scope of the assessment follows the direction from DOE-CH who determined those financial reports covered by the assessment. The SAT oversees the implementation of the assessment design and methodology as issued by DOE in the Quick Start Guides and the A-123 Assessment and Reporting Tool (AART).

In conclusion, SLAC’s Senior Assessment Team has implemented all six of the OMB Circular A-123 recommended actions and has performed the required assessment work for SLAC.

6.1e The success of the Contractor’s management and reporting of Indirect costs will be measured by an evaluation of the Contractor’s Direct-to-Indirect Ratio costs (1) as measured by Direct/Indirect cost calculations; and (2) comparison with an industry standard (60 % Direct / 40% Indirect).

To meet the target level of performance for the Contractor’s success in management and reporting of Indirect costs, the Contractor must provide verifiable documentation that Indirect data has been collected and applied in accordance with recommendations of the IG, GAO, and other independent review organizations, etc.; that the Indirect data and performance has been evaluated by Contractor top management; that Contractor management has implemented a plan for Indirect Ratio management toward a minimum Industry Standard Ratio of 60/40 percent; and that the Contractor has implemented the OMB Circular A-123 recommended actions for evaluation of internal control at the process, transaction or application level in order to guarantee accuracy and appropriate application of indirect rates.

SLAC Self-Evaluation: The management of indirect costs is a high priority for the laboratory. The Laboratory establishes budgets by organizational Directorate, by program including all indirect costs in a detailed manner. Budgets, both direct and indirect, for the year are submitted, reviewed and adjusted to meet the programmatic goals given the available funding for the fiscal year.

The indirect rates are pre-established based on forecasted costs for the fiscal year and are monitored throughout the fiscal year. If analysis of anticipated conditions discloses a material variance for the fiscal year, the pre- established rates will be revised to ensure that the anticipated variance is disposed of by allocating them to cost objectives in proportion to the costs previously allocated to these cost objectives. SLAC’s Chief Financial Officer (CFO) is responsible for evaluating the Indirect data and performance. Changes on the pre-established rates are recommended by the CFO and approved by the SLAC Director.

As discussed above, SLAC has implemented the DOE guidance on OMB Circular A-123 for evaluation of internal control at the entity, process, and transaction level, and that the indirect rates have been applied appropriately and accurately.

For FY06 the following are the actual direct-to-indirect ratios for SLAC costs. SLAC is well below the “Industry Standard Ratio of 60/40 percent).

	Direct/Indirect ($ in Thousands)
	Direct Costs	Indirect Costs	Ratio %
DOE Operating Program	$156,789	$44,224	78/22
Total DOE Costs (including capital and construction)	$251,697	$53,842	82/18

The Defense Contract Audit Agency (DCAA) has been requested by DOE-CH and COE/SSO to conduct a review of the SLAC Cost Accounting Disclosure Statement. The review is expected to be completed in early 2007.