Improving Financial Management at the State and Local Government Levels--How the Federal Government Can Help]

One of the many responsibilities of GAO is to report to Congress on how effectively state and local governments are handling federal funds. Over the years, many improvements have been made in state and local governments' financial management. Despite these improvements, financial management is still far from what it ought to be. The federal government is supporting several efforts to help improve financial management. State and local government accounting and reporting standards are being revised. Efforts are being made to establish a single audit implementation task group and to encourage better internal controls over federal funds spent by state and local governments. Many governments have large liabilities for pension benefits due their employees in future years, for accrued vacation pay, and for other employee benefits not shown on financial statements. Without identifying these liabilities, it is impossible to get a true picture of a government's financial status. It is difficult to determine what federal funds an organization has, how it got these funds, or how it uses them. Financial statements prepared under present standards often are difficult to understand. The Department of Housing and Urban Development has provided a grant of more than $1 million to undertake the research necessary to revise accounting standards. Action is underway to establish a governmental accounting standards board. Federal agencies have taken several steps to make the single audit concept a reality, but organization is needed to identify and analyze each difficulty which arises during the implementation of the concept. Good internal controls help ensure that transactions are executed according to top management's authorization, that assets are properly recorded, that access to assets is controlled, and that assets and records will be compared and reconciled at reasonable intervals. Proposed legislation would require agencies to report periodically on the adequacy of their internal control systems.