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U.S. Department of Energy ORDER
Washington, D.C. DOE O 413.1B

Approved: 10-28-08

SUBJECT: INTERNAL CONTROL PROGRAM

1. PURPOSE. Managers are accountable for the performance, productivity, operations, and
integrity of their programs through the use of internal controls. The purpose of this Order
is to ensure sound internal controls and overall consistency in exercising the statutory
authorities that vest in the Secretary, the Administrator, National Nuclear Security
Administration (NNSA), and Department’s Chief Financial Officer (CFO), and to
implement the Federal Managers’ Financial Integrity Act of 1982 (P.L. 97-255) and
related central agency guidance. The objective of the internal control program is to:

a. evaluate internal controls using existing information and day-to-day knowledge to
the maximum extent possible;
b. provide reasonable assurance that programs are protected from waste, fraud, and
mismanagement and that internal control over financial reporting is effective;

c. promote open recognition of problems prior to identification by outside
organizations;

d. focus attention on correcting the most serious problems; and

e. report the status of major problems up through the chain of command to the
President and Congress.

2. CANCELLATION. DOE O 413.1A, Management Control Program, dated 04-18-02.
Cancellation of a directive does not, by itself, modify or otherwise affect any contractual
obligation to comply with the Order. Contractor requirement documents (CRDs) that
have been incorporated into or attached to a contract remain in effect until the contract is
modified to either eliminate requirements that are no longer applicable or substitute a
new set of requirements.

3. APPLICABILITY.

a. DOE Elements. Except for the exclusions in paragraph 3c, this Order applies to
all Departmental elements, including those created after the Order is issued. (Go
to www.directives.doe.gov/pdfs/reftools/org-list.pdf for the current listing of
Departmental elements.)

The Administrator, NNSA will ensure that NNSA employees and contractors
comply with their respective responsibilities under this Order. Nothing in this
Order will be construed to interfere with the NNSA Administrator’s authority
under section 3212(d) of Public Law (P.L.) 106-65 to establish Administration
specific policies.

b. Contractors. The CRD, Attachment 1, sets forth the requirements intended to be
applied to contractors with responsibilities for the management and/or operation
of a DOE-owned or -leased facility. Contractor compliance with the CRD will be
required to the extent set forth in a contract.

c. Exclusion. The Bonneville Power Administration, which is treated as a
Government Corporation, is exempt from the reporting requirements in this
Order.

4. REQUIREMENTS. Terminology is defined in Attachment 2.

a. Annual Reporting.

(1) The Secretary provides an assurance statement in the Department’s annual
Performance and Accountability Report to the President and Congress
related to the effectiveness of the Department’s internal controls to
support effective and efficient programmatic operations, reliable financial
reporting, and compliance with applicable laws and regulations; and
whether the financial management systems conform to financial systems
requirements.

(2) Heads of Departmental elements and the Administrator, NNSA must
evaluate and annually report on the adequacy of their organization's
internal controls, including internal controls over financial reporting and if
applicable, financial management systems.

(3) Program management must correct reportable problems, material
weaknesses and financial management system nonconformances identified
in programs, administrative functions, and/or financial management
systems in a timely and effective manner.

(4) Reportable problems and material weaknesses must be considered as part
of the strategic planning, performance planning, and budgeting processes.

(5) Internal Control Action Officers must be appointed by Heads of
Departmental elements to serve as principal points of contact in
coordinating all planning, evaluating, and reporting related to the Internal
Control Program. For NNSA, the internal control program is managed by
the Director, Policy and Internal Controls Management.

b. Coordination and Oversight.

(1) The Internal Control Program is coordinated through the Office of the
Chief Financial Officer. For NNSA, the internal control program is
coordinated through the Director, Policy and Internal Controls
Management.

(2) The CFO manages the process of evaluating and reporting on all internal
controls, including internal controls over financial reporting, and financial
management systems.

(3) Annual assurance memorandums from Departmental Elements serve as
the basis for the Secretary’s report to the President and Congress on the
status of the Department’s internal controls, including internal controls
over financial reporting.

(4) The Departmental Internal Control and Audit Review Council provides
senior management oversight. Membership includes—

(a) the Chief Financial Officer (chairperson),

(b) Inspector General,

(d) Assistant Secretary for Environmental Management,

(e) Principal Deputy Administrator for NNSA,

(f) Chief Information Officer,

(g) Chief Health, Safety and Security Officer

(h) other heads of Headquarters elements, as selected by the standing
members of the Council, serving on a rotating basis, and

(i) a Special Assistant as selected by the Secretary.

5. RESPONSIBILITIES.

a. Heads of Departmental Elements and the Administrator, NNSA/Heads of Field
Elements.

(1) Maintain stewardship of Federal resources and ensure they are used
efficiently and effectively to achieve intended program results;

(2) Take systematic and proactive measures to establish cost-effective and
appropriate internal controls;

(3) Establish and provide separate assurances under the requirements of
this Order; and

(4) Notify contracting officers of contracts affected by the requirements of
this Order.

b. Chief Financial Officer.

(1) Ensures that the Internal Control Program is conducted in accordance with
this Order.

(2) Prepares and issues detailed guidance for conducting the internal control
review.

(3) Reviews Departmental elements’ assurance memorandums to evaluate
whether reporting requirements in this Order are followed.

(4) Reviews the year-end assurance memorandums and attachments prepared
by Departmental elements, and identifies potential leadership challenges
or material weaknesses.

(5) Prepares and presents to the Departmental Internal Control and Audit
Review Council (DICARC) for review and approval an executive
summary on the status of the Department’s internal controls and those
governing financial reporting.

c. Program Managers will correct reportable problems, material weaknesses and
financial management system nonconformances identified in program,
administrative functions, and/or financial management systems in a timely and
effective manner.

d. Inspector General.

(1) Provides technical assistance in the evaluation and improvement of
management and financial management system controls.

(2) Reviews year-end assurance memorandums from the Heads of
Departmental elements and from the Administrator, NNSA to ensure that
previously detected waste and other problems are appropriately disclosed.

(3) Provides independent written assurance to the Secretary annually on
whether the evaluation of DOE internal controls has been carried out in a
reasonable and prudent manner.

(4) Reports on financial systems compliance with Federal financial
management system requirements, applicable Federal accounting
standards, and the standard general ledger at the transaction level.

e. Departmental Internal Control and Audit Review Council provides senior
management oversight, as appropriate.

f. Contracting Officers will be responsible for incorporating the CRD into each
affected contract.

6. REFERENCES.

a. Government Accountability Office Policy and Procedures Manual for Guidance
of Federal Agencies, Title 7, Fiscal Procedures, which prescribes standards for
internal controls and financial systems operations.

b. Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1, November 1999.

c. Maintaining Effective Control Over Employee Time and Attendance Reporting,
GAO-03-352G, January 2003.

d. Office of Management and Budget (OMB) Circular A-123, revised,
Management’s Responsibility for Internal Control dated 12-21-04, which
provides guidance to Federal managers on improving the accountability and
effectiveness of Federal programs and operations by establishing, assessing,
correcting and reporting on internal controls, including internal controls over
financial reporting as described in Appendix A to the Circular.

e. OMB Circular A-127, Financial Management Systems, dated 7-23-93, which
prescribes policies for developing, operating, evaluating, and reporting on
financial management systems.

f. OMB Revised Implementation Guidance for the Federal Financial Management
Improvement Act (FFMIA), dated January 2001, which details the specific
requirements of FFMIA, as well as factors to consider in reviewing systems for
compliance with the Act.

g. OMB Circular A-130, revised, Management of Federal Information Resources,
dated 11-30-00, which establishes policy for the management of Federal
information resources.

h. Federal Managers' Financial Integrity Act of 1982 (FMFIA), Public Law
(P.L.) 97-255 [31 United States Code (U.S.C.) §3512], which requires
establishing internal controls in accordance with GAO standards; evaluating
internal controls in accordance with Office of Management and Budget
guidelines; and reporting annually by the Secretary to the President and Congress.

i. Accounting and Auditing Act of 1950, P.L. 81-784, Title I, Part II, as amended,
sections 112 and 113, which requires Federal agencies to maintain effective
systems of internal controls.

j. Reports Consolidation Act of 2000, P.L. 106-531 (31 U.S.C. Chapter 35) as
amended, which authorizes the consolidation of several key financial and
performance management reports required of Federal agencies.

k. Government Information Security Reform Act, P.L. 106-398, Title X, subtitle G,
which amends the Paperwork Reduction Act of 1995, by enacting a new
subchapter on information security. The Act primarily addresses the program
management and evaluation aspects of security.

l. Financial Management Improvement Act of 1996 (FFMIA), P.L. 104-208
(31 U.S.C. §3512), Federal which requires:

(1) each agency to implement and maintain financial management systems
that comply substantially with Federal financial management systems
requirements, applicable Federal accounting standards and the United
States Government Standard General Ledger (SGL) accounting at the
transaction level, and

(2) auditors to report on the Department’s compliance with the previously
stated requirements as part of the financial statement audit report.

m. National Nuclear Security Administration Act, P.L.106-65, Title XXXII (2000).

7. NECESSITY FINDING STATEMENT. In compliance with Sec. 3174 of P.L. 104-201
(50 USC 2584 note), DOE hereby finds that this Order is necessary for the protection of
human health and the environment or safety, fulfillment of current legal requirements,
and conduct of critical administrative functions.

8. CONTACT. For assistance, contact the Office of the Chief Financial Officer, Office of
Internal Review at 301-903-2551.

BY ORDER OF THE SECRETARY OF ENERGY:
JEFFREY F. KUPFER
Acting Deputy Secretary

ATTACHMENT 1. CONTRACTOR REQUIREMENTS DOCUMENT

Regardless of the performer of the work, the contractor is responsible for complying with the
requirements of this Contractor Requirements Document (CRD) and flowing down CRD
requirements to subcontractors at any tier to the extent necessary to ensure contractor
compliance.

As directed by the contracting officer, the contractor must consider all existing information
and report annually to the appropriate head of a Departmental element on the status of internal
control, including internal control over financial reporting and financial management systems.

1. The nature and extent of the process implemented by contractors to determine the
status of their internal controls under Federal Managers' Financial Integrity Act of
1982 (FMFIA) (P.L. 97-255) is at the discretion of the contracting officer and the
contractor; however, the Department must be made aware of significant problems,
which meet any of the following criteria:

a. substantially impairs the Department’s mission;

b. violates statutory or regulatory requirements;

c. substantially weakens safeguards against waste, loss, unauthorized use, and
misappropriation of funds or other assets;

d. results in a conflict of interest;

e. creates adverse publicity that affects the Department’s credibility;

f. merits the attention of senior DOE management, the Secretary, Congressional
Committees or the Executive Office of the President;

g. exists in a majority of programs, administrative functions, and/or organizations
and can cause harm, even though minor individually, because the aggregate is
significant;

h. risks or results in the actual loss of either $10 million or 5% of the resources of a
budget line item;

i. could reflect adversely on management integrity if not reported;

j. endangers national security;

k. has received adverse audit coverage; and/or

l. impairs the ability to meet DOE and Federal financial management system
requirements.

2. OMB Circular A-123. For implementing the requirements of OMB Circular A-123—
The contractor must assist DOE in meeting obligations imposed on DOE by OMB
Circular A-123, Appendix A, Internal Control over Financial Reporting, and contractor
activity is to be performed in accordance with annual guidance provided by the
Department's Chief Financial Officer as agreed to by the contracting officer and the
field chief financial officer for the respective contractor.

ATTACHMENT 2. DEFINITIONS

1. Contractors—a DOE contractor with responsibility for the management and/or operation
of a Department-owned or –leased facility or whose contract contains the clause Laws,
regulations and directives (48 CFR (DEAR) 970.5204-2).

2. Financial management systems—both manual and automated systems used to collect,
classify, analyze, and report data for financial decision making; process, control, and
account for financial transactions and resources; formulate and execute the budget; and
generate financial information in support of the Department's mission.

3. Internal controls—an organization’s procedures and methods that managers use to
achieve their goals; processes for planning, organizing, directing, and controlling
operations designed to reasonably assure that programs achieve intended results;
resources are used consistent with DOE's mission and are protected from waste, loss,
unauthorized use, and misappropriation; laws and regulations are followed; and decisions
are based on reliable data. Internal controls apply to all programs and administrative
functions.

4. Leadership challenge—a reportable problem that has been determined to be of
significance at the overall Departmental level and is reported by the Secretary.
Leadership challenges do not rise to the level of a material weakness.

5. Material weakness—a reportable condition that the Secretary determines to be significant
enough to be reported outside the Agency. For internal control over financial reporting, a
material weakness represents more than a remote likelihood for a misstatement of the
financial statements and the misstatements may be of a material magnitude.
6. Programs and administrative functions—a Departmental element’s programs and
administrative functions that are subject to evaluation and reporting.

7. Reportable nonconformance—a financial management system nonconformance with
Office of Management and Budget and Government Accountability Office requirements
that is of concern to the next higher level of management.

8. Reportable problem—one that generally would be of concern to the next higher level of
management.