The name of the GAO's game is more legislation.

• Position: General Accounting Office - From FEI

The General Accounting Office (GAO) made a power move this past fall in the field of corporate governance. The target: the report of the Committee of Sponsoring Organizations (COSO). The purpose: to broaden the scope of internal controls.

The move was played out in an exchange of letters between Donald H. Chapin, GAO assistant comptroller general, and Robert L. May, chairman of COSO. The original GAO letter, while addressed to May, was part of a filing made to the Federal Deposit Insurance Corporation (FDIC) regarding the regulations for the new FDIC Improvement Act. The GAO was displeased at not being able to use the COSO report in its efforts to push internal controls beyond financial reporting and into operations.

"We are disappointed that the final |COSO~ report is not responsive to our major concerns," Chapin wrote. "|It~ does not underscore the importance of internal controls, falls short on meeting the expectations of the Treadway Commission |National Commission on Fraudulent Financial Reporting~ for management's reporting on the effectiveness of internal controls, and misses opportunities to enhance internal controls oversight and evaluation."

Faced with this criticism in the public arena, COSO quickly responded. "We could not disagree more," wrote May. "The final COSO report does exactly what the Treadway Commission asked for." By establishing a common definition and a standard of measure, it "provides a foundation for mutual understanding that enables all parties to speak a common language and communicate effectively on internal control issues."

What the GAO did not like was the FDIC using the COSO report as an example of acceptable internal control standards in proposed regulations for the FDIC Improvement Act. "The report's message," Chapin wrote, " does not advance the status of corporate governance and may actually encourage management to lessen its attention to internal controls."

May responded: "Your letter makes it clear that achieving public reporting by management and independent auditors on a wide range of internal controls is high on the GAO's list of priorities. ... But that is not why COSO undertook this project and it is entirely inappropriate to impugn the COSO report because it does not echo the priorities of one organization."

The result of all this, according to Gaylen N. Larson, chairman of, and one of FEI's representatives on, the Project Advisory Council to COSO --and group vice president and chief accounting officer of Household International--was an exchange that focused on the details of the COSO standards rather than on the overall objectives of the GAO. "The GAO's agenda is to expand the role of the external auditor into the examination of internal controls," he says. "The COSO report places the GAO at some risk in accomplishing this."

As chairman of the Project Advisory Council, Larson had frequent discussions with the GAO. "I was told," Larson says, "that the GAO had no problem with the components as we described them. |But it decided~ to discredit the report, not by focusing on the operating issue but by alleging that COSO failed...