Financial Management

Financial management reform legislation, such as the 1990 Chief Financial Officers Act and the 1996 Federal Financial Management Improvement Act, have established a broad-based set of expectations for improving financial management in the government, including producing reliable financial reports, generating sound cost and performance information, fixing weaknesses in systems and controls, and building effective financial management organizations. This testimony discusses ways that Congress can help ensure that federal agencies effectively implement such laws.

GAO noted that: (1) an essential foundation to help achieve the goals of implementing financial management reforms is the requirement that the 24 Chief Financial Officers Act agencies annually prepare financial statements and subject them to an independent audit, beginning with those for fiscal year (FY) 1996; (2) additionally, audited consolidated financial statements for the U.S. government are now required annually, starting with those for FY 1997; (3) to further promote needed reforms, the Federal Financial Management Improvement Act calls for agencies to meet various financial management standards and requirements and, if they do not, to prepare remediation plans; (4) these reforms begin to subject the federal government to the same fiscal discipline imposed for years on the private sector and state and local governments; (5) this discipline is needed to correct long-standing serious weaknesses in federal financial management systems, controls, and reporting practices; (6) considerable effort is under way across government to make needed improvements and progress is being made, but a great deal of perseverance will be required to fully attain the legislative goals set by federal financial management statutes; (7) the federal government can continue to make progress in implementing financial management reforms, but the pace and extent of improvement will depend upon the dedication of agency heads and their senior management teams, especially chief financial officers, and the ability to deal with a range of financial management systems issues, as well as continuing emphasis by Congress on financial management reform; (8) broad oversight by Congress will be very important to hold agency heads accountable for needed financial management improvements; and (9) Congress would make a significant contribution to ensuring satisfactory results in this area if the results of financial audits and needed improvements became a routine part of its normal annual appropriation, authorization, and oversight deliberations.