Financial Management

The historic inability of many federal agencies to accurately record and report financial management data on both a year-end and an ongoing basis for decision-making and oversight purposes continues to be a serious problem. To improve the accountability and credibility of the federal government and to restore public confidence, Congress passed the Federal Financial Management Improvement Act of 1996, which requires auditors for each of the 24 major federal agencies named in the Chief Financial Officers Act (CFO) to indicate in their annual financial statements whether the agencies' financial management systems comply substantially with the following three requirements: federal financial management systems requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger at the transaction level. GAO is required to report annually on the act's implementation. This report discusses (1) the compliance of CFO agencies' financial systems with the act's requirements, (2) whether CFO agencies' financial statements have been prepared in accordance with applicable accounting standards, and (3) the agencies' plans to ensure that their systems comply with the act's requirements.

GAO noted that: (1) as a result of the audits of CFO agencies' financial statements and FFMIA's requirements, agencies are more aware of their financial management weaknesses and have started addressing them; (2) however, in terms of agency auditors' assessments of compliance with FFMIA, there has been little discernible progress since last year; (3) for the agencies whose fiscal year (FY) 1998 audit reports had been issued as of September 14, 1999, those whose financial management systems were not in compliance with FFMIA in FY 1997 were still not in compliance in FY 1998; (4) issues GAO identified in its report last year under FFMIA proved to be continuing significant challenges to agencies; (5) for FY 1998, auditors for 17 of 20 CFO agencies reported that the agencies' financial systems did not comply substantially with FFMIA's requirements; (6) although the statutory reporting deadline is March 1, the remaining four CFO agencies, as of September 14, 1999, had not yet issued their audited financial statements for FY 1998; (7) all four of the agencies were found by their auditors to be noncompliant with FFMIA for FY 1997; (8) auditors reported that the financial systems of 11 of these 17 agencies found to be noncompliant in FY 1998 were noncompliant with all three FFMIA requirements--federal financial management systems requirements, applicable federal accounting standards, and the Standard General Ledger; (9) auditors for 16 of the 17 agencies had reported for FY 1997 that the agencies likewise did not comply with FFMIA; (10) the seventeenth agency was reported as complying with the requirements of FFMIA in FY 1997 but was found to be noncompliant with systems requirements in FY 1998 due to auditors' interpretations of what constitutes substantial compliance; (11) further, in some agencies, factors that contributed to systems being found noncompliant increased, in part because agencies had problems implementing new accounting standards that became effective in FY 1998; (12) GAO's audit of the financial statements for the U.S. government for FY 1998 also showed that many agencies did not meet applicable accounting standards; (13) GAO issued a special series of reports this year that discusses major management challenges and program risks that must be addressed to improve the performance, management, and accountability of federal agencies; and (14) significant time and investment are needed for agencies to address and correct long-standing financial management systems problems.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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