Financial Management

The inability to produce the data needed to efficiently and effectively manage the day-to-day operations of the federal government and provide accountability to taxpayers has been a long-standing weakness at many federal agencies. The Federal Financial Management Improvement Act of 1996 requires the 24 major departments and agencies to adhere to certain management and accounting standards. The act also requires auditors to indicate in their audit reports whether their financial management systems comply with the act's requirements. GAO is required to report annually on the implementation of the act. This, GAO's fourth annual report, discusses: (1) whether the financial systems of the 24 major agencies substantially comply with the act's requirements; (2) agencies' plans to bring their systems into compliance; and (3) other efforts to improve the government's financial management systems. For fiscal year 1999, auditors for 21 of the 24 major agencies reported that the agencies' financial systems did not comply substantially with the act's requirements. However, the number of agencies receiving "clean," or unqualified, audit opinions on their financial statements is increasing. Fifteen of the 24 CFO Act agencies received unqualified audit opinions in fiscal year 1999, up from 12 in fiscal year 1998 and 11 in fiscal year 1997. Agencies are slowly making progress in addressing the problems caused by financial management weaknesses. However, the continued widespread noncompliance with the act shows that there is still a long way to go to achieve systems, processes, and controls that routinely generate reliable, useful, and timely information for managers and other decisionmakers.

GAO noted that: (1) for FY 1999, auditors for 21 of the 24 CFO Act agencies reported that the agencies' financial systems did not comply substantially with FFMIA's requirements--federal financial management systems requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger (SGL); (2) as a result, the vast majority of agencies' financial management systems fall short of the CFO Act and FFMIA goal to provide reliable, useful, and timely information on an ongoing basis for day-to-day management and decision-making; (3) reasons for systems' noncompliance include: (a) nonintegrated systems; (b) inadequate reconciliation procedures; (c) noncompliance with the SGL; (d) lack of adherence to accounting standards; and (e) weak security over information systems; (4) although the financial management systems of most agencies do not yet comply with FFMIA's requirements, the number of agencies receiving "clean" or unqualified audit opinions is increasing; (5) 15 of the 24 CFO Act agencies received unqualified audit opinions on their financial statements for FY 1999, up from 12 in FY 1998 and 11 in FY 1997; (6) auditors of 12 of the 15 agencies that received unqualified opinions reported that the agencies' financial systems did not comply substantially with FFMIA's requirements in FY 1999; (7) through the rigors of the financial statement audit process and the requirements of FFMIA, agencies have gained a better understanding of their financial management weaknesses and the impetus to resolve problems caused by those weaknesses; (8) at the same time, agencies are slowly making progress in addressing their problems; (9) while an increasing number of agencies are receiving "clean" audit opinions on their financial statements, the continued widespread noncompliance with FFMIA shows that there is still a long way to go to having systems, processes, and controls that routinely generate reliable, useful, and timely information for managers and other decisionmakers; and (10) many leading finance organizations have a goal to reduce the time spent on routine accounting activities, such as financial statement preparation, so that financial management staff can spend more time on activities such as business performance analysis or cost analysis.