Federal Aviation Administration

GAO has included the Federal Aviation Administration's (FAA) financial management on its list of government operations that are particularly vulnerable to waste, fraud, abuse, and mismanagement. (See GAO/HR-99-1, Jan. 1999.) The Department of Transportation's Office of the Inspector General (OIG) has been auditing FAA's financial statements since fiscal year 1994 and has consistently been unable to determine whether the financial information is reliable. In its most recent financial audit report, on FAA's fiscal year 1998 financial statements, the OIG was unable to substantiate billions of dollars in major assets or determine the accuracy of the reported $9 billion of costs for FAA's programs. This testimony (1) provides a brief history of FAA's financial management weaknesses, (2) discusses the identified fundamental problems that FAA must resolve to achieve financial accountability, and (3) highlights the corrective measures that the agency has under way.

GAO noted that: (1) GAO had previously reported that problems in accounting for property, plant, and equipment (PP&E) and inventory affect FAA's ability to efficiently and effectively manage programs that use these assets and expose the agency to waste, fraud, and abuse; (2) recently, GAO reported that FAA needs to improve its accountability over its field spares inventory; (3) four fundamental problems must be resolved before FAA can achieve the most basic level of financial accountability: (a) FAA must resolve the basic problems related to accounting for PP&E, and institute systems, procedures, and controls to ensure that accountability is maintained on an ongoing basis; (b) FAA must complete its improvements to its inventory accounting system, particularly those related to field spares; (c) FAA must implement a cost accounting system capable of reliably accumulating full project cost information; and (d) FAA must address its other financial reporting issues that preclude it from preparing meaningful financial statements; (4) the Office of Inspector General's audit report on the fiscal year (FY) 1998 financial statements identified numerous errors and weaknesses in FAA's process for keeping track of amounts related to PP&E; (5) FAA senior management has indicated that they recognize the urgency of correcting their financial management deficiencies and has recently taken steps to address them; (6) a comprehensive effort is being undertaken to identify all major PP&E assets and to develop accurate, supportable historical cost information for those assets; (7) FAA is in the process of establishing a perpetual inventory system for its field spares and plans to conduct a 100-percent field spares physical inventory for FY 1999; (8) efforts continue to develop a cost accounting system that is capable of accumulating the full cost of program activities on a timely basis; (9) FAA expects to have this system partially in place in June 1999 with a fully operational system expected to be in place in 2001; (10) while these actions are a step in the right direction, FAA is still far from achieving financial accountability; and (11) until the agency is able to correct its basic accounting deficiencies and produce a complete set of auditable financial statements, it will not fulfill its responsibility to the taxpaying public to be a responsible steward for the billions of dollars it is provided annually to carry out its mission.