Financial Management

Congress enacted the Federal Financial Management Improvement Act of 1996 to strengthen federal accounting practices and the government's ability to provide more reliable financial information. Beginning with the fiscal year ended September 30, 1997, auditors for 24 major federal agencies must report on whether the agencies' financial management systems comply substantially with federal financial management system requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger at the transaction level. This report discusses (1) the act's requirements, (2) efforts underway to implement the act, (3) challenges that agencies face in fully complying with those requirements, and (4) the status of federal accounting standards.

GAO noted that: (1) it is too early to tell the extent to which the 24 agencies named in the Chief Financial Officers (CFO) Act will be in compliance with FFMIA requirements for fiscal year 1997 because auditor reports discussing the results of the fiscal year 1997 financial statement audits will generally not be available until March 1, 1998, which is the statutory reporting deadline; (2) the Office of Management and Budget (OMB) and the CFO agencies have initiated efforts to implement the act's requirements and improve financial management systems; (3) although auditors performing financial audits under the CFO Act are not required to report on FFMIA compliance until March 1, 1998, prior audit results and agency self-reporting all point to significant challenges that agencies must meet in fully implementing systems requirements, accounting standards, and the U.S. Government Standard General Ledger; (4) regarding the adequacy of accounting standards, the Federal Accounting Standards Advisory Board (FASAB) has successfully developed a good initial set of accounting standards; (5) to date, FASAB has recommended, and OMB and GAO have issued, two statements of accounting concepts and eight statements of accounting standards tailored to the federal government's unique characteristics and special needs; and (6) OMB has integrated these concepts and standards into its guidance to agencies on the form and content of their financial statements.