Circular No. A-127
July 23, 1993
Transmittal Memorandum No. 1
TO THE HEADS
OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
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outdated guidance.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
Leon E. Panetta
Memorandum No. 1
TO THE HEADS
OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Financial Management Systems
4. Applicability and Scope
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
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.
- 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.
- 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.
- 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:
"agency" means any executive department, military department, independent
agency, government corporation, government controlled corporation,
or other establishment in the executive branch of the government.
"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
"financial system" means an information system, comprised of one
or more applications, that is used for any of the following:
processing, maintaining, transmitting, and reporting data about financial
financial planning or budgeting activities;
and reporting cost information; or
the preparation of financial statements.
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.
"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.
"mixed system" means an information system that supports both financial
and non-financial functions of the Federal government or components
"financial management systems" means the financial systems and the
financial portions of mixed systems necessary to support financial
"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
"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 element definitions
processing for similar types of transactions
version control over software
"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.
"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.
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.
of this objective, each agency shall establish and maintain a single,
integrated financial management system that complies with:
accounting principles, standards, and related requirements as defined
by OMB and the Department of the Treasury;
control standards as defined in Circular A-123 and/or successor
resource management policy as defined in Circular A-130 and/or
successor documents; and
policies and related requirements prescribed by OMB, the Department
of the Treasury and the agency.
single, integrated financial management system shall comply with
the characteristics outlined in Section 7 of this Circular.
Management System Requirements. Agency financial management systems
shall comply with the following requirements:
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.
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:
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.
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
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.
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.
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
-- 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.
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.
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
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.
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.
Reporting. The agency financial management system shall meet
the following agency reporting requirements:
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.
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.
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.
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.
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
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.
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.
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.
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.
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:
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.
- 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,
of another system within the department/agency,
of an existing system at another department/agency,
of a commercial "off-the-shelf" software package,
of a system under development at another department, or
of a private vendor's service.
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.
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.
- 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
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.
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.
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.
- 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;
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.
ongoing relationship for determining
future enhancements shall be established
between the parties involved.
arrangements for the transfer of the software shall conform to
Circular A-130 policies.
- 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
and Maintain an Agency-wide Inventory of Financial Management
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
and Maintain Agency-wide Financial Management System Plans.
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.
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.
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.
of Agency Financial Management Systems.
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
- Develop and Maintain Agency Financial Management
Agencies shall issue, update, and maintain
agency- wide financial management
system directives to reflect
policies defined in this Circular.
- 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.
Contact. All questions or inquiries should be addressed to the
Office of Federal Financial Management, Federal Financial Systems Branch,
telephone number 202/395-6903.
Date. This Circular shall be reviewed three years from the date
of issuance to ascertain its effectiveness.
Date. This Circular is effective immediately.
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