Financial Management

Implementation of the Cash Management Improvement Act Gao ID: AIMD-96-4 January 8, 1996

The Cash Management Improvement Act seeks to promote equity in the exchange of funds between the federal government and the states. This legislation was enacted in response to allegations that states either drew cash advances well before federal funds were needed to make payments or used their own funds to satisfy federal program needs and were not reimbursed promptly by federal agencies. GAO found that the act has heightened awareness of cash management at both the state and federal levels. The Treasury Department, federal agencies, and the states have made substantial progress in implementing the act. By revising the act's regulations to streamline the process and by emphasizing the results of single audits as a way to oversee state activities and enforce the act's requirements, the Treasury's Financial Management Service should be able to improve the act's effectiveness and help alleviate any concerns about administrative burden.

GAO found that: (1) FMS, federal agencies, and states have complied with CMIA requirements, established processes to implement CMIA, and made progress in achieving the act's goal of timely fund transfers; (2) total state interest liability during the first year of CMIA implementation was about $34 million; (3) states reported that while CMIA has improved their awareness of cash management, they are burdened by added administrative tasks; (4) states have not been able to effectively measure their compliance with CMIA, since the Office of Management and Budget has not published guidance for testing CMIA compliance; (5) FMS is taking action to address instances of state noncompliance in implementing CMIA which resulted in understatements of reported state interest liability; and (6) FMS is planning to revise CMIA regulations to allow states greater flexibility in funding techniques.

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