oversight

Financial Management: Additional Actions Needed to Improve Federal Financial Management Systems

Published by the Government Accountability Office on 1990-04-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                          ‘4
                                                               /A
             United States General Accounting   Office
             Report to the Director of the Office of     ,,-;i,-
             Management and Budget and the
             Secreky of the Trea&uy


April 1990
             FINANCIAL
             MANAGEMENT
             AddWmal Actions
             Neededto Improve
             Federal Financial
             ManagementSystems
r !.
--.       ,.‘.I
 z‘, .:
--
Accounting and Financial
Management Division

B-236152

April 27,199O


The Honorable Richard G. Darman
Director, Office of
   Management and Budget

The Honorable Nicholas F. Brady
The Secretary of the Treasury

This report discusses efforts by the Office of Management and Budget (OMB) and the
Department of the Treasury to improve the federal government’s financial management
operations, It also addresses the efforts undertaken by the lead agency for financial
management systems reform, the Department of the Treasury’s Financial Management
Service.

This report contains recommendations to you in chapters 2 and 3. As you know, 31 U.S.C
720 requires the head of a federal agency to submit a written statement of actions taken on
our recommendations. You should submit the statement to the House Committee on
Government Operations and the Senate Committee on Governmental Affairs within 60 days
of the date of this report and to the House and Senate Committees on Appropriations with
the agency’s first request for appropriations made over 60 days after the date of this report.
We would appreciate receiving copies of these statements.

We are sending copies of this report to interested congressional committees, Copies will be
made available to others upon request,

This report was prepared under the direction of Jeffrey C. Steinhoff, Director, Financial
Management Systems and Audit Oversight, who may be reached on 275-9454 if you or your
staff have any questions. Other major contributors are listed in appendix VI.




Donald H. Chapin
Assistant Comptroller General
Executive Summ~


                   The federal government continues to rely on financial management sys-
Purpose            tems that, despite billions of dollars of improvement efforts over many
                   years, have serious problems. Existing systems are antiquated; in a gen-
                   eral state of disrepair; costly to operate and maintain; and do not pro-
                   duce the complete, timely, and reliable financial data needed to help
                   make policy and management decisions. Because of the importance of
                   financial management systems in managing the federal government’s
                   financial operations, the General Accounting Office (GAO) (1) reviewed
                   the progress made by the Office of Management and Budget (OMB),
                   through the Chief Financial Officer (cm) Council, in developing a long-
                   range, governmentwide financial management plan, (2) obtained federal
                   agencies’ and OMB'S views of the Department of the Treasury’s Financial
                   Management Service’s oversight role performed by its Federal Agency
                   Financial Systems Program, and (3) reviewed the Program’s efforts to
                   monitor federal agencies’ progress in improving their financial systems.


                   In February 1987, the Office of Management and Budget and the
Backgro und        Department of the Treasury signed a memorandum of understanding
                   that designated the Financial Management Service as lead agency with
                   operational responsibility for assisting agencies in improving their
                   financial management systems. In March 1987, the Federal Agency
                   Financial Systems Program was established by the Service to accomplish
                   the objectives of the memorandum. The Program was to (1) work closely
                   with agencies to provide technical assistance and other support in
                   achieving compliance with governmentwide standards and requirements
                   and implementing needed improvements, (2) monitor agencies’ progress
                   against established goals, and (3) provide OMR with periodic reports on
                   agencies’ efforts to implement financial management systems. Program
                   officials have also interpreted the memorandum as giving them respon-
                   sibility to act as a clearinghouse for financial management systems
                   information.

                   In December 1987, OMB formed the CIWCouncil. The Council is comprised
                   of agency-level chief financial officers and is responsible for providing
                   policy, oversight, and support to agencies in dealing with govern-
                   mentwide financial management initiatives, including financial systems
                   and information.


                   GAO has long pointed out the need for and importance of comprehensive,
Results in Brief   long-range planning to help the government improve federal financial
                   management. In April 1989, OMB, working with the CFOCouncil, began to


                   Page 2                                 GAO/AFMD-90-14   Financial   System Actions
                           Executive   Summary




                           outline the concepts and principal ingredients for a plan. GAO believes
                           that this effort is an important first step in ensuring that a long-range,
                           governmentwide plan is developed and implemented.

                           Given the magnitude of federal financial management systems problems
                           and the short period the Federal Agency Financial Systems Program has
                           existed, OMB and most agency officials interviewed believe that the Fed-
                           eral Agency Financial Systems Program has been of some help. There is
                           a need now, however, to reevaluate the role and the expectations of the
                           Program. Uncertainty exists between OMB, the agencies, and to an extent
                           Treasury, as to what the Program is to achieve. While OMB gave the Ser-
                           vice a very broad operational mandate, the Program’s specific responsi-
                           bilities were not well defined, and the staffing provided was sparse.
                           There are questions as to whether the Program can achieve what is
                           expected with its current staffing.



Principal Findings

Agencies Have Struggled    It is generally acknowledged throughout the government that after
to Develop Financial       spending billions of dollars over many years to improve its financial sys-
                           terns, the government continues to operate with inadequate systems.
Systems                    Improvement projects were undertaken in an effort to provide federal
                           managers and the Congress with necessary financial information, Many
                           of these projects have suffered delays or failed altogether. Currently,
                           agencies report plans to continue existing or initiate additional projects
                           costing at least $2 billion. These projects have been undertaken, as in
                           the past, without the benefit of a long-range, governmentwide financial
                           management improvement plan to help guide and control the efforts.


Governmentwide Financial   In April 1989, OMB, working with the CFO Council, began developing a
Plan Has Not Been          long-range, governmentwide financial management improvement plan,
                           OMB and the Council began by outlining the concepts and principal ingre-
Developed                  dients of effective financial management in the 1990s. A long-range,
                           governmentwide financial management plan would (1) outline the major
                           long-range goals and objectives, along with the policies and strategies
                           for accomplishing them, (2) detail how the government will implement
                           the long-range plan in the short-term, including establishing milestones
                           and determining resource needs, and ensuring that those needs are
                           clearly identified in agency budgets submitted to OMB and the Congress,


                           Page 3                                   GAO/AFMD-90-14Financial   System Actiona
                            Executive   Summary




                            (3) provide a baseline for annual reporting to the Congress on the prog-
                            ress made and impediments to progress, and (4) provide direction and
                            continuity when leadership changes occur centrally, as well as at the
                            agency level. The next step is for OMB and the cm Council to develop a
                            long-range financial management plan.


The Federal Agency          GAO found that the Federal Agency Financial Systems Program has been
                            of some help in furthering governmentwide improvements in financial
Financial Systems           management systems, With any new program, however, there are modi-
Program’s Role Is Unclear   fications and improvements that are needed to ensure that it operates
                            effectively and efficiently. For example, GAO found the following prob-
                            lems: (1) the agencies are uncertain as to what the Program should be
                            doing to assist them in improving financial management systems and
                            (2) there is general agreement between agency, OMB, and Treasury offi-
                            cials that Program personnel do not have the technical expertise to
                            assist agencies in the design, development, and implementation of finan-
                            cial management systems. OMB plans to clarify the Program’s role in the
                            future.

                            OMB and federal agency officials believe the Program can improve its
                            efforts to assist them by reassessing the nature and amount of feedback
                            it provides on system improvement efforts. Some agency officials have
                            not received any feedback on their financial management plans pro-
                            vided to Program personnel. Other agency officials who did receive
                            feedback believe it was not useful because it was informal and generally
                            only contained information previously provided to Program personnel.

                            Program officials believe that insufficient resources have hindered their
                            efforts to adequately accomplish their objectives. Under the memoran-
                            dum of understanding, OMB is responsible for ensuring that adequate
                            resources are available for carrying out the Program’s responsibilities,
                            Two years after its establishment, however, the Program staff com-
                            prised only eight members with responsibility for overseeing fmancial
                            system improvements for the entire federal government,


Comprehensive Strategy      A comprehensive strategy defining the objectives of the Federal Agency
for Administering the       Financial Systems Program has not been developed. GAO reviewed vari-
                            ous plans that had been prepared by Treasury and found that the plans
Program Has Not Been        generally did not rank Program objectives or identify specific milestones
Developed                   for accomplishing them. The former Director of the Program stated that
                            the merits of developing a comprehensive strategy had been recognized,


                            Page 4                                 GAO/AFMD90-14   Financial   System Actions
                  Executive Summary




                  but to actually develop one would have diverted resources from the Pro-
                  gram’s financial systems monitoring efforts. A comprehensive strategy
                  would provide agencies direction and focus by (1) defining the roles and
                  responsibilities of Program personnel, (2) identifying governmentwide
                  systems initiatives and their relative priority, and (3) establishing spe-
                  cific milestones for implementing financial system improvement
                  projects, This strategy would be an integral part of the long-range,
                  financial management improvement plan currently being developed by
                  OMB, in conjunction with the CFO Council.



                  GAO is recommending that the Director of the Office of Management and
Recommendations   Budget direct the CFOCouncil to ensure that a long-range financial man-
                  agement improvement plan is developed and implemented for the fed-
                  eral government.

                  GAO is also recommending that the Director of OMB and the Secretary of
                  the Treasury clarify the role of the Federal Agency Financial Systems
                  Program. In addition, GAO is recommending that once the role is defined,
                  the Secretary of the Treasury, in consultation with OMB, issue a compre-
                  hensive financial management systems strategy for the Program.


                  OMB, in commenting on this report, agreed with GAO'S principal findings
Agency Comments   that (1) the government’s financial systems remain inadequate despite
                  the expenditure of billions of dollars and (2) additional projects are
                  being undertaken without the benefit of an adequate governmentwide
                  financial management improvement plan. OMB believes that some prog-
                  ress has been made over the last several years to improve the govern-
                  ment’s financial systems and cited several improvements, including the
                  development of governmentwide systems standards and the increased
                  use of cross-servicing and off-the-shelf software.

                  Regarding the Federal Agency Financial Systems Program, OMB believes
                  that, although more could have been accomplished, the Program staff
                  has provided valuable information and assistance on agencies’ systems
                  improvement efforts. OMB stated that it would describe the roles and
                  responsibilities of the various parties involved in financial systems
                  improvement, including that of the Program, in a strategy document.
                  OMB plans to include the strategy document in the governmentwide
                  financial plan currently being developed and scheduled to be issued in
                  May 1990. OMB also plans to consider, during preparation of the 1992
                  Budget, resource requirements for improving the government’s financial


                  Page 6                                 GAO/AFMD-90-14   Finam5a.l System Actions
Executive Summary




       OMB'S planned actions are responsive to
systems.                                          GAO'S
recommendations.

The Department of the Treasury agreed that there is a need to clarify
the roles of the different parties involved in the financial management
systems improvement initiative, including that of the Program. Treasury
believes that its Program staff performed the task assigned under the
memorandum of understanding, but agreed that more could be accom-
plished if additional resources are provided. Treasury agreed that the
clarification of the Program’s role and the amount of assistance to be
provided to agencies by the Program staff should be more fully defined
in the financial management improvement plan currently being formu-
lated by OMB and the CFOCouncil.




Page 6                                GAO/AFMD-90-14Financial   System   Actions
                                                       I




Page 7   GAO/AlWD-90-14   Financial   System Actions   1
Contents


Executive Summary                                                                                         2

Chapter 1                                                                                             10
1nt;roduction          Financial Management System Reform Efforts                                     11
                       Objectives, Scope, and Methodology                                             14

Chapter 2                                                                                             17
Efforts Underway to    Unsuccessful Efforts to Develop Financial Management                           17
                            Systems
Develop a              Current Agency Efforts to Improve Financial System                             19
Governmentwide              Operations
                       Long-range Plan Is Needed for the Federal Government                          20
Financial Management   Additional Actions Needed to Aid in Financial                                 23
Improvement Plan            Management Improvement
                       Conclusions                                                                   24
                       Recommendations                                                               24
                       Agency Comments and Our Evaluation                                            25

Chapter 3                                                                                            26
Federal Agency         Financial Management Service Designated Lead Agency                           26
                            for Financial Systems Reform
Financial Systems      Agencies Believe the Program Can More Effectively                              29
Program Has Been            Perform Its Financial Management Systems Function
                       Role of Federal Agency Financial Systems Program Needs                        32
Helpful but                 to Be Clarified
Improvements Can Be    Sufficient Resources Need to Be Allocated to the Program                      33
Malde                  Comprehensive Financial Systems Strategy Has Not Been                         34
                            Developed
                       Conclusions                                                                   36
                       Recommendations                                                               37
                       Agency Comments and Our Evaluation                                            37

Appendixes             Appendix I: Memorandum of Understanding Between                               38
                           OMB and Treasury
                       Appendix II: Departments and Agencies Included in Our                         42
                           Review
                       Appendix III: Financial System Improvement Projects and                       43
                           Related Estimated Costs
                       Appendix IV: Comments From the Office of Management                           44
                           and Budget



                       Page 8                               GAO/AFMD-90-14   Financial   System Actions
Ckmtents




Appendix V: Comments From the Department of the
    Treasury
Appendix VI: Major Contributors to This Report                                50




Abbreviations

CFO        Chief Financial Officer
IhHA       Farmers Home Administration
GAO        General Accounting Office
HUD        Department of Housing and Urban Development
IRS        Internal Revenue Service
OMB        Office of Management and Budget


Page 9                               GAO/AFMDYO-14   Financial   System Actions
Chapter 1

Introduction


               The financial management concepts and practices followed by the fed-
               eral government are weak, outdated, and inefficient. As a result, the
               federal government cannot effectively manage its operations or control
               its resources. Decisionmakers at all levels of the federal government are
               not receiving the financial information they need to help make policy
               and management decisions and to know the ultimate financial impact of
               those decisions. This information gap becomes especially critical as the
               federal government struggles with the deficit and is faced with difficult
               spending decisions.

               A major cause of the federal government’s financial problems is the poor
               condition of its financial management systems. Financial systems are
               the cornerstone of good internal control and are critical to ensuring
               accountability. The costs of inadequate federal financial management
               systems have been chronicled over and over again-fraud,       waste, and
               abuse amounting to billions of dollars, and the American public’s loss of
               confidence in the federal government.

               The scandal at the Department of Housing and Urban Development
               (HUD)  is another reminder of the price the government and the taxpayer
               pay when financial systems deteriorate beyond the breaking point. HUD
               is not the only department with inadequate financial management sys-
               tems but unfortunately is typical of what we find in many other agen-
               cies Many of the government’s financial systems are old, with their
               basic structure having been designed during World War II. Hundreds of
               millions of dollars are spent each year on uncoordinated efforts to
               upgrade these systems. Despite improvement efforts over many years,
               the systems are second rate. As the President’s fiscal year 1989 report
               on Management of the United States Government states, “Once a leader
               in the early days of automation, the Government’s financial systems and
               operations have eroded to the point that they do not meet generally
               accepted standards.”

               There is an ever growing consensus within the Congress and the execu-
               tive branch that major improvements are urgently needed to restore
               integrity to the federal government’s financial management operations.
               For these efforts to be effective and lasting, they must be sustained
               across administrations and guided by a cohesive framework under cen-
               tralized leadership.

               For many years, agencies have recognized the need to modernize, rede-
               sign, and/or enhance their financial management and accounting sys-
               tems to correct deficiencies (1) identified as a result of reviews done


               Page 10                                GAO/AFMD9@14   F’inanciaJ System Actiona
                           Chapter 1
                           Introduction




                           under the Federal Managers’ Financial Integrity Act of 1982l or
                           (2) which have come to their attention through other means, such as GAO
                           and inspectors general audits. However, conventional efforts to put the
                           government’s financial house in order have lacked the long-term govern-
                           mentwide approach that is necessary to ensure that consistent data are
                           available across agency and department lines. Ad hoc agency by agency
                           improvement efforts, despite costing billions of dollars, have not
                           resulted in adequate financial systems.


                           Agencies do not currently have the financial management systems and
Financial Management       internal controls necessary to effectively manage their programs and
System Reform Efforts      safeguard their assets. Our audits and federal agencies’ Financial Integ-
                           rity Act reports continue to disclose that financial systems are
                           (1) incompatible and costly to operate and maintain, (2) unable to pro-
                           duce complete, timely, and reliable financial data needed for policy-mak-
                           ing and day-to-day operations, and (3) weak due to a lack of strong
                           internal controls. There are efforts underway to attempt to meet this
                           challenge and a recognition in the central federal financial agencies-
                           GAO, OMB, and Treasury-that     a governmentwide focus to reform is
                           essential.


Central Agencies Support   Within the last several years, there has been increased governmentwide
Improvement of Financial   attention to improving financial management systems. In 1985 we issued
                           a report entitled Managing the Cost of Government (GAO/AFMD~~-~~ and
Management Systems         35A), which identified problems affecting the federal financial manage-                               n

                           ment structure, proposed suggestions to guide improvement efforts, and
                           provided a strategy for implementing needed improvements. It was our
                           goal to increase awareness of the severity of the problem and the
                           urgency of needed corrective actions and to foster dialogue as to solu-
                           tions. This has occurred.

                           In August 1986, the Comptroller General, the Director of OMB, and the
                           Secretary of the Treasury signed a joint letter to all federal agencies
                           conveying the commitment of the three central federal financial agen-
                           cies to improve federal financial management. In a March 1985 docu-
                           ment entitled Financial Management and Accounting Objectives, OMB
                           expanded on the objectives stated in its December 1984 Circular A-127,

                            ‘Under provisions of the Federal Managers’ Financial Integrity Act of 1982 (31 USC. 3612(b) and
                           (c)), agencies are responsible for maintaining adequate systems of internal control and accounting.
                           The ad requires agency heads to report annually to the President and the Congress on the status of
                           these systems, and it holds them responsible for correcting identified deficiencies.



                           Page 11                                               GAO/AFMB?M-14 Financial System Actions
Chapter 1
wroduction




“Financial Management Systems,” by calling for increased standardiza-
tion of agency financial systems and information. The circular
prescribes policies and procedures which federal agencies must follow in
developing, operating, evaluating, and reporting on financial manage-
ment systems. Under this circular, agencies are required to prepare a 5-
year plan for developing a single integrated financial management sys-
tem. In August 1987, GAO issued an appendix III to Title 2 of the Policy
and Procedures Manual for Guidance of Federal Agencies. The appendix
prescribes accounting system standards that agency heads must observe
in establishing, maintaining, and reporting on their systems of account-
ing and internal controls. The standards apply to all manual and/or
automated accounting systems that are under development, under major
revision, or operating.

To help ensure that agencies coordinate designing, implementing, and
operating unique, stand-alone systems, further efforts have been made
to standardize federal accounting and financial reporting. The US. Gov-
ernment Standard General Ledger, which was issued by OMB in Septem-
ber 1986, was reissued as a supplement to the Treasury Financial
Manual. The Ledger provides a uniform chart of accounts and support-
ing transactions to be used to standardize federal agency accounting and
to support the preparation of standard external reports.

In building upon the provisions of the U.S. Government Standard Gen-
eral Ledger, the central agencies also recognized the need to (1) modern-
ize and upgrade the financial systems agencies rely upon to control costs
and (2) demonstrate accountability for public funds. To assist federal
agencies in developing new financial management systems, in May 1987,
an interagency task force was established under the direction of the
Joint Financial Management Improvement Program (JFMIP). In January
1988, the task force issued the Core Financial System Requirements,
which establishes minimum functional requirements that must be met
by all financial systems in the federal government. Further, agencies
have been encouraged to use off-the-shelf software when upgrading
their financial systems and to eliminate redundant systems through the
use of cross-servicing arrangements. Cross-servicing is where one
agency provides data processing and accounting services for one or
more other agencies.




Page 12                                GAO/AFMDM-14   F’inancial   System Actions
                             Chapter 1
                             Introduction




OMB and Treasury Efforts     The Administration has supported the need for a legislatively mandated
                             chief financial officer (cm) structure and the need for a legislative
to Improve Financial         underpinning to the financial management systems reform effort. Also,
Management                   we have called for the CFOstructure and financial reform legislation, and
                             other actions, such as the need for a long-range, governmentwide finan-
                             cial management plan and improved financial reporting and audits. We
                             believe strongly that legislation is the key to improvement. The Presi-
                             dent’s Management of the United States Government reports (herein-
                             after called management reports) for fiscal years 1988 and 1989 high-
                             lighted the problems caused by costly, inadequate, and antiquated finan-
                             cial management systems. These problems include

                           . financial management information that is inadequate for general man-
                             agement purposes, with large gaps in information on cash flows, pro-
                             gram and administrative costs, property, and outstanding debt;
                           . financial systems that are redundant and antiquated, cost millions of
                             dollars to update and maintain, and do not effectively manage the gov-
                             ernment’s resources;
                           9 cash management practices that waste hundreds of millions of dollars
                             annually; and
                           9 internal controls that are ineffective against fraud and waste and fail to
                             prevent losses or inefficient use of billions of dollars in federal
                             programs.

                             The magnitude of these problems indicates that the task of improving
                             the federal government’s financial management systems represents a
                             major challenge.

                             As an interim step, in July 1987, the Director of OMB administratively
                             appointed a Chief Financial Officer for the federal government. Subse-
                             quently, in November 1987, OMBdirected that chief financial officers be
                             established in federal departments and agencies. In February 1987, OMB
                             and Treasury signed a memorandum of understanding to confirm their
                             commitment to work cooperatively to improve the government’s finan-
                             cial systems. (See appendix I for a copy of the memorandum of under-
                             standing.) This memorandum designated Treasury’s Financial
                             Management Service as the lead agency with operational responsibility
                             for improving federal financial management systems. In March 1987,
                             the Financial Management Service established the Federal Agency
                             Financial Systems Program to assume the lead for overseeing federal
                             agencies’ efforts to improve their financial management systems.




                             Page 13                                 GAO/AF’MB9@14   Financial   System Actions
                         Chapter 1
                         lntroduct10n




                         The objectives of our review were to (1) determine the progress made by
Objectives, Scope, and   OMB, through the CFOCouncil, to develop a long-range, governmentwide
Methodology              financial management plan, (2) obtain federal agencies’ and OMB'S views
                         of the Financial Management Service’s oversight role performed by the
                         Federal Agency Financial Systems Program, and (3) determine the ade-
                         quacy of the Program’s efforts to monitor agencies’ progress in imple-
                         menting financial management systems.

                         We conducted our review between April 1988 and October 1989 in
                         accordance with generally accepted government auditing standards. We
                         performed our work at the Office of Management and Budget, Trea-
                         sury’s Financial Management Service, and 18 agencies in Washington,
                         D.C. (Appendix II identifies the agencies.) The basis for our views on the
                         need for a long-range, governmentwide financial management plan
                         stemmed from our analysis of prior and recent efforts by federal agen-
                         cies to develop and implement financial management improvements. We
                         have outlined the need for long-range planning in various GAO reports
                         such as Managing the Cost of Government, and our November 1988
                         transition report entitled Financial Management Issues (GAO/OCG-89-TTR).
                         We also reviewed numerous GAO testimonies presented before different
                         Congressional committees. In addition, we talked with representatives to
                         and reviewed minutes of cm Council meetings to determine progress
                         made developing and implementing a plan.

                         Our review of the Financial Management Service’s role as the lead
                         agency for financial management systems reform was limited to the
                         Federal Agency Financial Systems Program. This Program, established
                         to support the memorandum of understanding, deals solely with finan-
                         cial management systems initiatives. Although financial system program
                         officials maintain a close relationship with other Financial Management
                         Service officials involved in other aspects of financial management, such
                         as cash and credit management, the Federal Agency Financial Systems
                         Program officials are responsible for monitoring federal agencies’ finan-
                         cial management systems reform efforts.

                         To determine each agency’s views of the Federal Agency Financial Sys-
                         tems Program’s oversight role and the ability of the Program and OMB to
                         monitor agencies’ progress in implementing financial management sys-
                         tems, we administered two structured interviews-one       to agencies’ chief
                         financial officers and another to agency officials involved in the agen-
                         cies’ day-to-day financial management operations. Based on agency con-
                         tacts provided by Program officials, with few exceptions, we
                         interviewed the same agency officials that Program personnel contact


                         Page 14                                  GAO/AFMD-90-14   Financial   System Actions
 when performing their monitoring efforts. We did not interview the
 Small Business Administration’s chief financial officer because one had
 not been appointed at the time of our review, but talked to senior finan-
 cial management officials at the agency.

We reviewed the Financial Management Service’s Tactical Plan for fiscal
years 1988 through 1990, fiscal years 1988 through 1991, and fiscal
years 1989 through 1992. We also reviewed the Service’s most recent
Strategic Plan available at the time of our review-the   February 1987
Strategic Plan-for effecting financial management improvements, as
well as the May 1989 Strategic Plan developed by the Department of the
Treasury’s Fiscal Service. In addition, we interviewed Financial Manage-
ment Service and 0.~113officials regarding their approach and methodol-
ogy for evaluating agencies’ financial management system improvement
programs.

We compiled information on federal agencies’ financial management sys-
tem enhancement efforts, including the ident.ification of applicable sys-
tem cost and milestone information. This information was developed
through reviews of agencies’ fiscal year 1988 Federal Managers’ Finan-
cial Integrity Act reports and the 5-year financial management plans for
fiscal year 1989 required under OMHCircular A-l 27. Appendix III shows
the number of financial management improvement projects, systems
affected, and the related estimated costs reported by each agency in its
5year plan. At the time of our review, these plans were the latest
available.

We requested and received official comments on our report from the
Office of Management and Budget and the Department of t,he Treasury.
The comments are included as appendix IV and appendix V, respec-
tively. Appendix VI shows the major contributors to this report.


The succeeding chapters address (1) the federal government’s past and
present efforts to develop and implement sound financial management
systems, (2j efforts by ohm, through the C~QCouncil, to develop a long-
range, governmentwide financial management plan, (3) Treasury Finan-
cial Management Service efforts to improve federal financial manage-
ment, and (4) agencies’ and (NH’S views of the Financial Management
Service efforts.




Page 15                                 GAO/AFMD-90-14 Financial System Actions
Chapter 1
Introduction




Chapter 2 discusses past unsuccessful attempts by federal agencies to
develop improved financial management systems. It also discusses cur-
rent and planned financial system improvement efforts and initiatives
underway to improve financial operations. In addition, it addresses the
need for the Administration to develop and implement a long-range,
governmentwide financial management improvement plan to guide
agencies in their financial management improvement efforts.

Chapter 3 discusses the agencies’ and OMB’S perceptions of the role and
performance of the Federal Agency Financial Systems Program in moni-
toring agencies’ efforts to improve financial management systems. Also,
the chapter discusses the need for the Program’s role to be clarified and
the need for a comprehensive strategy to direct its efforts.




Page 16                                GAO/AFMD90-14   Financial   System Actions
(‘haptw 2

Efforts Underway to Develop a
Government-wide ITinaneial Management
Improvement Plan
                       During the last several years, a number of agency efforts to improve
                       financial management operations, some critical to effective agency oper-
                       ations, have proven unsuccessful and were terminated after costing
                       hundreds of millions of dollars. At the beginning of fiscal year 1989,
                       agencies had over 200 financial management system improvement
                       projects ongoing or planned in an effort to provide federal managers and
                       the Congress current, accurate, and compatible financial data with
                       which to effectively and efficiently administer program operations.
                       Based on information contained in the agencies’ S-year plans, these
                       projects are estimated to cost over $2.1 billion.

                       These efforts have been undertaken, however, without the benefit of a
                       long-range, governmentwide financial management improvement plan.
                       Such a plan is important because it would focus and set the priorities
                       and direction for the numerous efforts already underway and may help
                       to avoid more failures for these efforts as well as those planned for the
                       future. OMIJthrough the rk~ Council. has begun concentrating on devcl-
                       oping concepts and formulating the principal ingredients the plan should
                       contain in order for it to be an effective guide to direct the government’s
                       financial management improvement efforts in the future.


                       Federal agencies have struggled for years in their attempts to redesign,
Unsuccessful Efforts   enhance, and develop new accounting and financial management sys-
to Develop Financial   terns. The recent scandal at m’r) provides a clear reminder of what can
Management Systems     happen when an agency is unable to implement adequate accounting
                       and financial management systems. 11111)‘s  problems, for the most part,
                       were long-standing but unfort.unately not effectively dealt with. r1r.n is
                       not alone. In many agencies throughout the government, we see prob-
                       lems in developing new systems to replace old ones that are inadequate.
                       As discussed in our November 29, 1989, report entitled Financial Integ-
                       rity Act: Inadequate Controls Result in Ineffective Federal Programs
                       and 13illions in Losses ((;AO.~ZFILID-RO~IO),
                                                                invariably, these new systems do
                       not work as planned, have cost overruns in the millions and even hun-
                       dreds of millions of dollars, and are not developed on time.

                       IIundreds of individual accounting and financial management system
                       projects, costing hundreds of millions of dollars each year, have been
                       undertaken throughout, the government. Among others, recent long-term
                       projects to improve systems at the Department of Defense, the Farmers
                       IIome Administration (IML~), and the Int.ernal Revenue Service (IRS),
                       have either been terminated, delayed, or have proven incapable of pro-
                       viding the improvements originally envisioned. This has resulted in
Chapter 2
Efforts Underway to Develop a
Governmentwide      Financial Management
Improvement    Plan




waste of hundreds of millions of dollars in taxpayers’ funds, with little
in return to show for the expenditures. Also, these system failures have
affected the agencies’ abilities to effectively manage federal programs.
Without accurate and reliable financial information, program managers
are not being provided the operational and cost data that is essential to
monitor programs, anticipate overruns, and provide a basis for pro-
grams and budget planning. Following is a discussion of some agencies’
unsuccessful attempts to improve financial management systems.

 In January 1989, after 9 years and an estimated $230 million, the
 Department of the Navy terminated further development and implemen-
 tation of its Standard Automated Financial System. The system, which
 was to have provided the Kavy a standard financial management sys-
 tem for Navy Industrial Fund Research, Development, Test, and Evalua-
tion activities, was determined by the Navy to be too costly and had
 faced opposition from most users who doubted the system could be suc-
 cessful. In September 1988, we reported’ that the system’s implementa-
tion schedule had slipped over 5 years and its estimated project costs
 had grown from $32.9 million to $479.4 million.
 In July 1988, after schedule slippage of nearly 2 years and expenditures
in excess of $15 million, the then Deputy Secretary of Defense directed
the termination of its central Foreign Military Sales Accounting and Bill-
ing System development effort. This effort began in 1982 after 6 years
of largely unsuccessful efforts by the Defense Security Assistance
Agency to institute central accounting control over the multibillion dol-
lar Foreign Military Sales program. In terminating the effort, the Deputy
Secretary noted that in addition to the schedule slippage, “the project
has substantially exceeded cost and schedule estimates without achiev-
ing any systemwide capability.” Our September 1988 report’ concluded
that the decision to terminate was appropriate in light of the more than
 10 years of unsuccessful efforts to improve the program’s accounting.
IRS has experienced serious and long-standing financial management sys-
tem problems. Currently, a multimillion dollar systems modernization
program is underway. One part of the modernization effort is the Capi-
talized Assets Management System project. The IRS started the project in
1979 to provide reliable accounting control, through one system, over its
capitalized property, which in October 1988 exceeded $307 million. In
September 1987, after more than 7 years and an estimated system

‘Computer Prwur~m~nt: Lkwwn Ncedcd on Navy’s Standard h~tomatcd Financial System (GAO/
IMTEC-8%4’/, Septembw 13. 198R).
“Foreign Military Sales: kdirrutic~n of Acrnunt ing Improwmcnt   Efforts Is Appropriate (GAO/
AFMD-8%‘15. tiptcmtwr 15. lR88).



Page 18                                                GAO/AFMD-90-14     Financial   System Actions
                         Chapter 2
                         Efforts Underway to Develop a
                         Ckwemmentwide      Financial Management
                         Improvement   Plan




                         development cost of $2.7 million, IRS implemented a version of the sys-
                         tem that will not account for or control capitalized computer hardware
                          and software. We reported in October 1988” that, as a result, IRS will
                         maintain two property accounting systems. Project managers responsi-
                         ble for the design and implementation of this system attributed the lack
                         of upper level management involvement and the low priority given to
                         financial management matters to the delay and deviation from the
                         intended concept.
                     l   Since 1974, the FmHA has twice attempted to modernize its automated
                         financial management systems. The objectives of these two attempts-
                         the Unified Management Information System and the Automated Pro-
                         gram Delivery System-were to meet federal accounting requirements;
                         provide responsive, timely management information to managers; mini-
                         mize field office data input; and improve service to loan applicants and
                         borrowers. After years of effort to implement the systems, with costs
                         totaling about $26 million, the projects were terminated. Office of
                         Inspector General officials attributed the failures to inadequate plan-
                         ning combined with ineffective management and oversight. FmHA is in
                         the early stages of planning its third attempt to modernize its financial
                         management systems. Our August 1989 report;’ observed that FmHA
                         appears to be approaching the latest modernization effort correctly,
                         including beginning the development of an overall plan for guiding the
                         effort.


                         Federal agencies have continued their attempts to institute projects for
Current Agency           improving financial management operations. According to fiscal year
Efforts to Improve       1989 financial management plans provided to OMB, which were the latest
Financial System         available at the time of our review, agencies have undertaken or
                         planned system development projects estimated to cost over $2.1 billion.
Operations               Of this amount, nearly $1 billion is for system enhancement efforts
                         within the civil agencies, and over $ I. 1 billion is for system enhance-
                         ment efforts within the Department of Defense. These improvement
                         efforts encompass 234 projects affecting 2 10 systems.

                         The costs reported by the agencies, in their 5-year financial management
                         system improvement plans, are not all inclusive. For the most part,
                         agencies did not report system improvement costs incurred prior to the

                         “Managmg IRS: Actions Needed to Assure Quality Service in the Future (GAO/GGD-89.1,     October 14,
                         1988).
                         “Information Management: Issues Important to Farmers Home Administration Systems Modernization
                         (GAO/IhJM




                         Page 19                                             GAO/AFMD-W-14      Financial   System Actions
                             Chapter 2
                             Efforts Underway to Develop a
                             Governmentwide      Financial Management
                             Improvement    Plan




                             &year plan period or planned future costs beyond the 5-year period. In
                             some cases, in-house personnel costs to improve the systems were not
                             included. Therefore, the total cost of these system improvements would
                             be more than what was reported by the agencies. Appendix III shows
                             each agency’s financial management system improvement efforts. Sev-
                             eral of the larger efforts included in agencies’ plans are highlighted
                             below.

                         l The Department of the Treasury’s financial management plan cites
                           financial management system improvements totaling about $3 10 million.
                           The plans contain 54 projects encompassing 28 financial management
                           systems.
                         . The Department of the Army has identified 8 projects involving 41 sys-
                           tems to improve its financial management system operations. These
                           improvements are expected to cost about $308 million.
                         . Thirteen financial management systems are to be improved by the
                           Department of the Air Force. These improvements involve 8 projects
                           costing an estimated $18 1 million.
                         l Fourteen financial management system improvement projects are under-
                           way or planned for the Department of Agriculture. These projects are
                           estimated to cost about $169 million and will cover 4 financial systems,

                             The vast number of projects planned and the magnitude of funds ear-
                             marked by these agencies, and others throughout the government, are
                             substantial. Therefore, it is important that steps, such as the develop-
                             ment and implementation of a long-range, governmentwide financial
                             management improvement plan, are taken to (1) rank and direct the
                             numerous efforts already underway, (2) identify duplicate efforts that
                             could be candidates for cross-servicing, whereby one agency provides
                             data processing and accounting services for one or more other agencies,
                             and (3) help avoid more delays and failures for future projects.


                             Prior efforts to put the government’s financial house in order have
Long-range Plan Is           lacked the long-range, governmentwide approach that we feel is neces-
Needed for the Federal       sary. While we identified the need for such a plan in 1985 and, in April
Government                   1989, OMB, through the cm Council, began discussing the concepts and
                             formulating the basis of a plan, the government still does not have a
                             long-range, governmentwide financial management improvement plan.

                             We have long pointed out the need for and importance of comprehen-
                             sive, long-range planning. Planning is the process of formulating goals
                             and objectives, considering alternative approaches for achieving them,


                             Page 20                                    GAO/AFMD-90-14   Financial   System Actions
                           Chapter 2
                           Efforts Underway to Develop a
                           Governmentwide      Fiiancial Management
                           Improvement    Plan




                          selecting and laying out a course of action, and integrating activities of
                          different units. This concept is important when planning for financial
                          management improvements at all levels-program,          agency, and govern-
                          mentwide. It is critically important, however, at the governmentwide
                          level to set overall direction and facilitate a cohesive, unified approach
                          for setting priorities and allocating resources.

                          The planning process for federal financial management system improve-
                          ment efforts should (1) produce a long-range, governmentwide plan that
                          outlines the major long-range goals and objectives, with the policies and
                          strategies for accomplishing them, (2) detail how the government will
                          implement the long-range plan in the short-term, including establishing
                          milestones and determining resource needs, and ensuring that those
                          needs are clearly identified in agency budgets submitted to OMB and the
                          Congress, and (3) provide a baseline for annual reporting to the Con-
                          gress on the progress made and impediments to progress.


GAO Identifies Need for   The federal government faces a major fiscal crisis. Effective measures
Financial Management      must be taken to control the continuing budget deficits and reduce the
                          massive accumulated federal debt. Currently, many agency financial
Plan                      systems are weak, outdated, and inefficient, and cannot routinely pro-
                          duce relevant, timely, and comprehensive information. Members of Con-
                          gress and federal managers need to know the real financial effects of
                          past decisions and the potential costs and benefits of alternative actions.
                          Hard choices must be made. The effectiveness of those choices will be
                          affected by the quality of the data and the adequacy of the financial
                          management systems used to provide this information.

                          In 1985, we issued a report entitled Managing the Cost of Government
                          which was the culmination of a major study of the government’s finan-
                          cial management practices. The report identified significant problems
                          affecting the federal financial management structure, proposed a con-
                          ceptual framework to guide improvement efforts, and provided an
                          implementation strategy. As discussed in congressional testimonies,‘l and
                          more recently in our November 1988 transition report to the new
                          Administration and the Congress,” trying to institute improvements
                          without a long-range, governmentwide financial management plan is
                          like trying to build a house without blueprints. An overall plan would

                          ‘The Federal Financial Management Reform Act of 1987 (GAO/T-AFMD-87-18, .July 23, 1987) and
                          Federal Financial Management Reform (GAO/T-AFMD-88-18, September 22, 1988).

                          “Financial Management Issues (GAO/OCG-89.7TR, November 1988).



                          Page 21                                           GAO/AFMD90-14     Financial   System Actions
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                             Efforts Underway to Develop a
                             Govemmentwide      Financial Management
                             Improvement   Plan




                             generate greater confidence that financial management system improve-
                             ments would result in integrated systems for the government as well as
                             in information needed by individual agencies. Finally, an overall plan
                             would provide direction and continuity when leadership changes occur,
                             centrally as well as at the agency level.

                             The development and implementation of a long-range financial manage-
                             ment improvement plan is important to the success of any system
                             enhancement effort, especially one encompassing the entire federal gov-
                             ernment’s financial management systems. Efforts of this type are costly
                             investments both in terms of human commitment and financial
                             resources. The decisions made at the time financial management sys-
                             tems initiatives are being planned and carried out will significantly
                             affect the success of the efforts both in the short- and long-term. We
                             believe a long-range, governmentwide financial management systems
                             improvement plan should at a minimum:

                         l describe the existing financial management structure of the federal gov-
                           ernment and the changes needed to establish an integrated financial
                           management system;
                         l contain requirements, consistent with the accounting and financial
                           reporting principles, standards, and requirements prescribed by the
                           Comptroller General, Treasury, and OMB;
                         l provide a strategy for developing and integrating individual agency
                           accounting, financial information, and other financial management sys-
                           tems to ensure adequacy and consistency of information;
                         . identify duplicative and unnecessary systems, and provide a strategy
                           for eliminating such systems by encouraging agencies to share systems
                           which have sufficient capacity to perform the functions needed;
                         4 identify projects to bring existing systems into compliance with the
                           applicable standards and requirements;
                         l contain milestones for equipment acquisitions and other actions neces-
                           sary to implement the plan consistent with the aforementioned require-
                           ments; and
                         9 estimate the costs and resources needed to implement the plan.


Cl% Council Recognizes       The CFOSand other financial management officials we interviewed
Need for Financial           believe that the establishment of the CFOCouncil has helped in address-
                             ing the government’s financial management problems. We agree with
Management Plan              this assessment. The Council is made up of agency-level chief financial
                             officers and is organized into a series of committees and subcommittees
                             that deal with governmentwide financial management initiatives. The


                             Page 22                                   GAO/APMD9@14   Financial   System Actions
                               Council is chaired by the O~II%
                                                             Chief Financial Officer, with Treasury’s
                               Fiscal Assistant Secretary serving as the Vice Chairman.

                               Agencies believe the Council provides them a medium for exchanging
                               information and discussing common problems on financial management
                               systems and overall improvements that are needed to enhance the fed-
                               eral government’s financial operations. Representatives to the CEY)Coun-
                               cil address a wide range of financial management issues such as
                               (1) long-term planning for improving federal financial management sys-
                               tems, (2) progress made under t.he Federal Managers’ Financial Integrity
                               Act, and (3) implementation of financial management and related legis-
                               lation such as the Prompt Payment Act.

                               In April 1989, the CIQ Council began discussing the need for long-range
                               planning for federal financial management. The Council established a
                               working group which consisted of representatives from OMR,Treasury,
                               and the Departments of Agriculture, Defense, Health and Human Ser-
                               vices, and Veterans Affairs. In ,July 1989, t,he group, in conjunction with
                               the full Council, developed a framework that concentrates on the con-
                               cepts and principal ingredients for the plan and defines (1) the mission
                               of federal financial managers, (2) federal financial management goals,
                               (3) impediments to reaching the goals, (4) objectives for attaining the
                               goals, (5) strategies for meeting objectives, and (6) indicators of
                               expected results and benefits to be realized.


                               The actions taken by the C:K~Council to develop the concepts and formu-
Additional Actions             late the ingredients of a long-range, governmentwide financial manage-
Needed to Aid in               ment improvement plan are an important first step in improving
Financial Management           financial management in the federal government. We support these
                               actions. Additional effort is needed now to ensure, as the Council has
Improvement                    stated, that the proposed plan serves as the primary source for setting
                               governmcntwide financial management objectives. For example:

                         A plan would integrate financial system improvement efforts contained
                           l



                         in agencies’ yearly s-year plans required by OMRCircular A-127.
                       . The plan would include improvement initiatives that may affect agen-
                         cies’ financial management operations, such as those contained in the
                         agencies’ 5-year automated data processing plans and those related to
                         financial aspects of the agencies’ program systems.
                       l A plan would identify instances where agencies plan to obtain available
                         cross-servicing from other agencies and/or utilize off-the-shelf software
                         for various financial needs in lieu of developing duplicate systems.


                               Page 23                                 GAO/AFMD-W-14   Financial   System Actions
                  Chapter 2
                  Efforts Underway to Develop a
                  Govemmentwide      Financial Management
                  Improvement   Plan




                  It is also important that the Council ensure that all federal agencies com-
                  mit to a “buy-in agreement” that essentially requires the agencies, from
                  top management down, to support the concepts of an overall plan. This
                  would include each agency (1) setting up a financial organization to
                  ensure that the plan is implemented, (2) providing adequate funding and
                  staffing to carry out the plan’s objectives, (3) ensuring that the financial
                  staff is assured the necessary training in the proper design, develop-
                  ment, and implementation of financial management systems, and
                  (4) implementing financial systems that include effective internal con-
                  trols and conform to the Comptroller General’s accounting principles,
                  standards, and related requirements.


                  Over the years, federal agencies have undertaken hundreds of individ-
Conclusions       ual financial management system improvement projects costing billions
                  of dollars. Although a number of those projects were delayed or unsuc-
                  cessful because of various problems in the development process, includ-
                  ing lack of a governmentwide plan, today agencies continue to redesign,
                  enhance, and develop financial management systems that cannot rou-
                  tinely produce relevant, timely, and comprehensive information. As a
                  result, members of Congress and federal managers are denied the oppor-
                  tunity to know the real financial effects of past decisions and the poten-
                  tial costs and benefits of alternative actions.

                  OMB,  through the CFOCouncil, has developed the framework for a finan-
                  cial management improvement plan for the federal government. It is
                  important that these efforts are sustained. While a financial manage-
                  ment improvement plan will not in itself ensure that efforts are always
                  successful, an overall plan would generate greater confidence that finan-
                  cial management system improvements would result in integrated sys-
                  tems for the government as well as provide information and financial
                  reporting needed by individual agencies. Also, an overall plan would
                  provide direction and continuity when leadership changes occur, cen-
                  trally as well as at the agency level. Without an overall plan and central
                  leadership to guide these efforts, the government risks wasting
                  resources on duplicate system development efforts and having needed
                  system development and enhancement projects suffer further delays or
                  fail altogether.


                  We recommend that the Director of OMB direct the CFOCouncil to
Recommendations   (1) develop and implement a long-range, governmentwide financial man-
                  agement improvement plan and ensure that the plan contains reasonable


                  Page 24                                   GAO/AFMD9@14   Fiicial   System Actions
                       Chapter 2
                       Efforts Underway to Develop a
                       Governmentwide      Financial Management
                       Improvement    Plan




                       estimates of the costs and resources needed to implement the plan,
                       (2) establish realistic milestones to gauge progress achieved under each
                       planned objective and update the plan based on that examination, and
                       (3) ensure that the resources needed for implementing the plan are iden-
                       tified in each agency’s budget.

                      Because of the Congress’s continued interest in improving the federal
                      government’s financial management systems, we also recommend that
                      the Director of OMB report annually to the House Government Operations
                      Committee and the Senate Governmental Affairs Committee on the prog-
                      ress in implementing, and any impediments to achieving, the objectives
                      outlined in the long-range, governmentwide financial management
                      improvement plan being prepared by the CFOCouncil.


                      In commenting on this report, OMB agreed with our principal findings
Agency Comments and   that (1) the government’s financial systems remain inadequate despite
Our Evaluation        the expenditure of billions of dollars and (2 j additional projects are
                      being undertaken without the benefit of an adequate governmentwide
                      financial management improvement plan. OMB believes that some prog-
                      ress has been made over the last several years to improve the govern-
                      ment’s financial systems and cited several improvements, including the
                      development of governmentwide systems standards and the increased
                      use of cross-servicing and off-the-shelf software.

                      OMB pointed out that the CEVCouncil has begun expanding the initial
                      ingredients of the July 1989 plan into a more concrete document. The
                      Council recently issued a draft governmentwide financial systems strat-
                      egy to Council members in February 1990 and states that it will con-
                      tinue to expand that document, OMB anticipates issuing a financial
                      management improvement plan in May 1990.

                      The Department of the Treasury agreed t,o the need for a financial man-
                      agement plan and is supporting OMB and the CFOCouncil’s efforts in its
                      formulation.




                      Page 25                                     GAO/AFMD-W-14   Financial   System Actions
Chapter 3

Federal Agency Financial Systems Program Has
Been Helpful but Improvements Can Be Made

                       While a well thought out, achievable plan is integral to the success of
                       the financial reform initiative, governmentwide leadership is also of
                       utmost importance. Today, leadership is split between OMR, which has
                       the CFQand governmentwide systems responsibility, and Treasury,
                       which has responsibility for governmentwide financial reporting. In car-
                       rying out its CFYI and systems duties, OMB has been constrained by limited
                       staffing resources and has looked to Treasury for help. The systems
                       improvement initiative is one such area.

                       In February 1987, Treasury and OMR signed a memorandum of under-
                       standing which designated Treasury’s Financial Management Service as
                       the lead agency responsible for improving financial management sys-
                       tems In response, in March 1987, the Financial Management Service
                       established the Federal Agency Financial Systems Program. We looked
                       at the Program after 2 years of operation and believe, as with any
                       evolving program, changes are needed. The Program’s role is unclear,
                       and OMB and Treasury officials agree that the staffing provided-eight
                       people for the entire government-is     not sufficient to achieve the objec-
                       tives outlined in the memorandum of understanding. The expectation
                       that the Program staff can provide technical assistance is not realistic at
                       this time and was seen as a problem by Treasury, OMB, and the agencies.
                       Also, agencies were, for the most part, uncertain as to the Program’s
                       specific role and responsibilities, and there were even differences
                       between Treasury and OMR officials in this regard.


                       In February 1987, OMB and Treasury signed a memorandum of under-
Financial Management   standing that designated Treasury’s Financial Management Service as
Service Designated     lead agency with operational responsibility for assisting agencies in
Lead Agency for        improving their financial management systems. The memorandum con-
                       firmed OMB'S and Treasury’s commitment to improve federal financial
Financial Systems      management systems and was intended to clarify the roles and responsi-
Reform                 bilities of the two organizations+ In making the designation, OMB cited the
                       Service’s past successes with lead agency assignments in the areas of
                       cash and credit management. OMB staffing in the financial management
                       systems area consisted essentially of two senior level staff who devel-
                       oped system policy.

                       In March 1987, the Federal Agency Financial Systems Program was set
                       up to accomplish the objectives of the memorandum of understanding.
                       The Program was to (1) work closely with agencies to provide technical
                       assistance and other support in achieving compliance with govern-
                       mentwide standards and requirements and implementing needed


                       Page 26                                 GAO/AFMDYO-14   Financial   System Actions
Chapter 3
Federal Agency Financial Systems Progrm
Has Been Helpful but Improvements  Can
Be Made




improvements, (2) monitor agencies’ progress against established goals,
and (3) provide OMB periodic reports on agencies’ efforts to implement
financial management systems. Resources were taken from existing
activities within the Service to staff the function, and, 2 years later, the
Program’s staff consisted of eight people with responsibility for review-
ing and overseeing agencies’ implementation of their financial manage-
ment system improvement plans. These plans included the 5-year
financial management and operating plans required by OMB Circular A-
127 and corrective action plans contained in agencies’ annual reports
issued pursuant to the Federal Managers’ Financial Integrity Act,

Federal Agency Financial Systems Program officials stated that the Pro-
gram has three roles. It monitors agencies’ progress in implementing
financial management systems. It acts as a clearinghouse of information
on financial management systems for the Joint Financial Management
Improvement Program, OMB, GAO, and the agencies. Also, it provides
technical assistance and other support to federal agencies.

 In their role as monitor of agencies’ planned efforts to improve financial
 systems, Program officials stressed that they do not have adequate staff
to conduct reviews or audits. As such, the extent of their monitoring
efforts has been focused on looking at agencies’ 5-year financial man-
 agement plans to (1) determine the basic strategies agencies are pursu-
ing, (2) determine whether cost estimates seem realistic, and (3) provide
advice regarding systems development/improvement efforts, if neces-
sary. Although the memorandum of understanding does not specifically
require the Program to provide the clearinghouse function, Program
officials believe this to be an essential role of the Program. Program offi-
cials stated that in their role as a financial management systems
clearinghouse, they are a central source of information for the various
ongoing governmentwide financial management system initiatives. As
such, they identify financial system issues, problems, and solutions and
attempt to set up forums for discussion. Program officials told us that
they have not provided as much technical assistance to federal agencies
as they would have liked due to resource constraints.




Page 27                                   GAO/AFMD-90-14   Financial   System Actions
Chapter 3
Federal Agency Financial Systems Program
Has Been Helpful but Improvements  Can
Be Made




The Program’s initial focus has been mainly on monitoring agencies’
efforts to develop and implement primary accounting systems.’ Accord-
ing to Program officials, they have begun refocusing their work on agen-
cies’ specific types of subsidiary systems” and are in the process of
developing the criteria for evaluating agencies’ billings, receivables, and
collections systems that will lay the groundwork for subsequent evalua-
tion of such agency systems, After evaluations of the subsidiary sys-
tems are completed, Program officials stated that agencies’ program
financial systems:’ will be their next area of concentration.

Program officials informed us, that in conjunction with their efforts to
oversee individual agencies’ implementation of primary and subsidiary
financial systems, they have also attempted to assist agencies on a
governmentwide basis. For example, Program personnel have worked
with and provided oversight to agency officials during their efforts to
implement the US, Government Standard General Ledger. Also, Pro-
gram officials have held numerous workshops and seminars to discuss
financial system issues relating to OMB Circular A-l 27 and the use of off-
the-shelf financial system software. In addition, Program personnel
have participated in user groups made up of agencies using the same
vendor’s software to share common information, problems, and
solutions.




 ‘OMB defines a primary accounting system as the financial system that provides the required general
ledger control over all financial transactions, resource balances, and subsidiary financial systems. The
primary accounting system makes all standard budget and financial reports to OMB, Treasury, and
the Congress; accounts for assets and liabilities; and provides for overall funds control.

‘Subsidiary systems are accounting and administrative support systems that provide detailed infor-
mation to the primary accounting system. Examples of operations covered by subsidiary systems are
payroll, property, administrative payments and collections, and accounts receivable and accounts
payable.

‘%‘rogram financial systems are those systems that carry out unique program and operating functions
as well as financial management. Examples include systems that provide accounting services for large
entitlement programs, such as social securrty; major loan programs, such as small business loans; and
insurance programs, such as housing mortgage insurance loan guarantees.



Page 28                                                 GAO/AFMD-90-14      Financial   System Actions
                            Chapter 3
                            Federal Agency Fiiancial  Systems Prom
                            Has Been Helpful but Improvements   Can
                            Be Made




Agencies Believe the        terns Program has been of some help to them in improving financial
Program Can More            management systems. The officials interviewed stated, however, that
Effectively Perform         there are improvements that can be made to strengthen the Program
                            and make it more effective. For example, agencies generally are uncer-
Its Financial               tain as to the specific role the Program is to fulfill in the area of finan-
Management Systems          cial management systems. Also, some agencies told us they have not
                            been provided technical assistance on financial management system
Function                    development projects. In addition, agencies believe the Program could
                            provide more meaningful feedback from its monitoring of agency finan-
                            cial management system improvement plans.

                            One thing that is important in considering the views of the agencies
                            regarding the success of the Program is that while the memorandum of
                            understanding gives Treasury operational responsibility, the Program
                            was not staffed accordingly. Treasury has been successful in its lead
                            role in cash and credit management. These areas are better defined and
                            certailily less complex and diverse than reforming the federal govern-
                            ment’s financial management systems and overseeing in excess of $2 bil-
                            lion of system improvement projects, To expect meaningful operational
                            results with only eight people is not realistic. According to Treasury
                            officials, the cash and credit management areas each consist of about 30
                            people and each area has clear criteria and expectations for accomplish-
                            ing Treasury’s role. The lack of a governmentwide financial manage-
                            ment improvement plan, as discussed in chapter 2, also impedes
                            Treasury in carrying out this program.


Agencies Are Uncertain of   Many agencies are uncertain of the Program’s specific role and responsi-
Program’s Role              bilities in assisting them in improving their financial management sys-
                            tems, and none of the agencies saw evidence of the full range of
                            responsibilities described by Program officials. In two of the 18 agencies
                            in which we administered our structured interviews, neither the chief
                            financial officer nor the financial management personnel interviewed
                            knew what the Program’s role was in federal financial management
                            reform, Chief financial officers in two other agencies were also unaware
                            of this role. In the remaining agencies, officials’ perceptions of the Pro-
                            gram’s role ranged from that of a monitor/evaluator, intermediary/over-
                            seer, to a clearinghouse+ For example, in one agency, the chief financial
                            officer felt that the Program’s primary role was to act as a clearing-
                            house for financial management system information, whereas agency
                            personnel we interviewed believed the Program’s role was that of a
                            monitor of agencies’ system development efforts.


                            Page 29                                   GAO/AFMD-9014   Financial   System Actions
                           Chapter 3
                           Federal Agency Financial Systems Program
                           Has Been Helpful but Improvmmt~    Can
                           Be Made




                           As discussed later, we believe this uncertainty regarding the Program’s
                           role can largely be attributed to OMB and the Service not clearly defining
                           the operational responsibility of the Program and publicizing the Pro-
                           gram’s role. Also, the Program’s lack of a comprehensive strategy identi-
                           fying its governmentwide role and plans for implementing financial
                           management systems reform was a contributing factor. Some agency
                           officials we interviewed believe that not having a strategy has caused
                           the Program’s efforts to lack focus and has made it difficult to deter-
                           mine the Program’s priorities.


Agencies Believe Program   The February 1987 memorandum of understanding states that the
                           Financial Management Service is to “work closely with agencies to pro-
Unalble to Provide         vide technical assistance and other support in achieving compliance
Technical Assistance       with Governmentwide standards and requirements.” Treasury and OMB
                           officials agree, however, that the technical assistance referred to in the
                           memorandum of understanding has not been defined, Further, agency,
                           OMB, and Treasury officials all agreed that Program personnel did not
                           have the expertise to provide the technical assistance that is needed to
                           design, develop, or enhance financial management systems. These are a
                           highly complex undertaking, and realistic expectations for the Program
                           are needed.

                           Of the 18 agencies in which we conducted interviews, only 8 had
                           requested technical assistance from Program officials; in 4 of those
                           cases, technical assistance had not been provided. Of the 10 agencies
                           that did not request technical assistance, one agency official thought
                           that the agency needed technical assistance, but felt the Program was
                           not capable of providing it. The nine remaining agencies generally
                           believed that the financial management systems technical expertise lies
                           in the agencies, and that the Program could not provide the types of
                           technical assistance needed.


More Meaningful Feedback   The nature and amount of feedback on agencies’ planned efforts to
Can Be Provided to         improve financial management systems is another area that needs to be
                           reassessed. Although most agencies had received some feedback from
Agencies                   Program officials, agency officials told us that the majority of the feed-
                           back was not written and was provided during meetings and telephone
                           conversations with Program personnel. According to agency officials,
                           these discussions were very general and only touched on the status of




                           Page 30                                    GAO/AFMDSO-14   Financial   System Actions
Chapter 3
Federal Agency Financial Systems Program
Haa Been Helpful but Improvements  Can
Be Made




their financial management system improvement efforts, Agency offi-
cials also told us that the limited amount of written feedback provided
by the Program was not useful.

Two agencies told us they had not received any feedback on their 5-year
financial management plans, operating plans, Financial Integrity Act
reports, or other documents provided to Program officials. One official
noted that such feedback would have been beneficial because it would
have given the agency a sense of whether OMB and Program officials
thought the agency was progressing. The other official stated that Pro-
gram personnel had answered a number of questions regarding the
agency’s financial systems efforts, but the agency did not consider that
to be feedback. In discussing our comments regarding feedback, Finan-
cial Management Service officials told us that since the Program’s incep-
tion they had held at least one meeting with every major department
and agency to discuss plans for implementing governmentwide financial
management system initiatives,

Of the remaining 16 agencies that did receive some feedback on their
plans, agency officials told us the feedback generally was verbal, infor-
mal, and, in some cases, limited. For example, one agency official told us
that the only feedback received was through general, informal discus-
sions regarding a system project’s status and that the feedback was not
beneficial. Another agency official told us that, in his opinion, Program
personnel did not give formal guidance and that they need to better plan
what they want agencies to do+ In our view, this problem is predictable
given the lack of a governmentwide improvement plan and limited staff-
ing for the Program.

We asked Program officials if they had provided the agencies any writ-
ten analysis or feedback regarding financial management system
improvement efforts. We were informed by the officials that, as
required by the February 1987 memorandum of understanding, individ-
ual profiles describing each agency’s status of financial management
system improvements and Program officials’ analyses of those efforts
had been prepared and provided to OMB. We were also informed that the
profiles had been provided to each agency. We attempted to obtain cop-
ies of the profiles from the agencies to determine the degree of analysis
provided by the Service and if the feedback was useful to the agencies,
We found that only 7 of the 18 agencies had received the profile, and 4
of those that had, did not believe the analyses aided them.




Page 31                                    GAO/AFMDSO-14   Financial   System Actions
                        Chapter 3
                        Federal Agency Financial Systems Program
                        Has Been Helpful but Improvements  Can
                        Be Made




                        Officials for these four agencies felt the agency profiles were not of use
                        to the agency because they only contained information previously pro-
                        vided to Program personnel. An observation offered by one agency offi-
                        cial was that information contained in his agency’s profile did not reflect
                        the Program’s opinion as to whether the agency’s cost estimates
                        appeared realistic. Another official observed that Program personnel
                        had described the agency’s financial systems structure incorrectly in the
                        profile.

                        Regarding the remaining three agency officials that thought the profile
                        was useful, each believed the profiles could be improved. One official
                        indicated that the utility of the profile is diminished because the Pro-
                        gram officials tend to keep the profile information until agencies request
                        it. Another agency official stated that the agency profile, although pro-
                        viding support for the agency during budget deliberations, had not
                        helped in providing insight within the agency. Another agency official
                        told us that the profile was more beneficial than harmful because it sup-
                        posedly is a tool for providing OMB information about the agency’s finan-
                        cial system improvement efforts, The agency official said, however, that
                        the profile overstated what the agency was actually doing to enhance its
                        financial management systems.


                        Although the February 1987 memorandum of understanding sets out
Role of Federal         the general objectives to be achieved by the Financial Management Ser-
Agency Financial        vice, there is confusion as to specifically what the Federal Agency
Systems Program         Financial Systems Program should be doing. As mentioned previously,
                        agency officials were unclear as to what this role entailed. OMB officials
Needs to Be Clarified   acknowledge that the memorandum of understanding did not ade-
                        quately define the role envisioned for the Program. OMB officials told us
                        that they planned to work with Treasury to clarify the Program’s role in
                        the future; however, they had not done so at the time of this report. OMB
                        and Treasury officials also agreed that staff resources for the Program
                        would have to be reevaluated once the Program’s role is clarified.

                        OMB officials believe, that based on the 2 years the Program has existed,
                        the analyses performed on agencies’ 5-year financial management sys-
                        tem plans have been useful. They feel that the Program would be most
                        useful in monitoring, evaluating, and reporting on agencies’ actions to
                        implement projects identified under the 5-year financial management
                        plans and that additiona written analyses of agencies’ progress would
                        be helpful.



                        Page 32                                    GAO/AFMD-90-14   Financial   System Actions
                       Chapter 3
                       Federal Agency Financial Systems Program
                       Has Been Helpful but Improvements  Can
                       Be Made




                       In conjunction with the monitoring and evaluating role, OMB officials
                       believe that a future goal of the Program is more verification of the
                       financial information provided by the agencies. They believe that the
                       Program staff should not function as auditors but could improve the
                       validity and usefulness of the data if more verification was performed.


                       Federal Agency Financial Systems Program officials believe that insuffi-
Sufficient Resources   cient resources have hindered their ability to adequately accomplish
Need to Be Allocated   their objectives as lead agency for federal financial management sys-
to the Program         terns reform. One of OMB'S responsibilities, as outlined in the February
                        1987 memorandum of understanding, is to ensure that adequate
                       resources are available to carry out the Program’s responsibilities. How-
                       ever, even though the Financial Management Service’s fiscal year 1989
                       budget request included provisions for 10 additional staff for this pur-
                       pose, it was reduced by OMB, and the fiscal year 1990 request for staff-
                       ing increases was reduced by the Department of the Treasury even
                       though the Program has been given the lead responsibility for financial
                       management systems. Program officials have also alluded to a high
                       turnover of experienced staff as contributing to their inability to per-
                       form some functions. In addition, agency officials felt that the turnover
                       rate of Program staff had affected its ability to possess a good working
                       knowledge of the financial management structure of specific agencies.

                       In February 1989, the former Director of the Federal Agency Financial
                       Systems Program informed us that a project to evaluate agencies’ sub-
                       sidiary financial systems would be delayed. An objective contained in
                       the Financial Management Service’s Tactical Plan for fiscal years 1988
                       through 1991 shows that in fiscal year 1989, the Service was to evaluate
                       23 agencies’ subsidiary systems and recommend opportunities for cen-
                       tralizing and streamlining. The Director told us that the delay was
                       attributed to a budget reduction consisting of a loss of two staff mem-
                       bers who were to be assigned this responsibility.

                       OMB officials agreed that the Federal Agency Financial Systems Program
                       does not have the resources necessary to perform all the financial man-
                       agement system reform objectives described in the memorandum of
                       understanding. As mentioned earlier, OMB officials, in conjuncti6n with
                       Treasury, plan to reevaluate the Program and clarify the role and
                       responsibilities of Program personnel. Once the role and responsibilities
                       are determined, we believe OMB, working with Treasury, should ensure
                       that sufficient resources for the conduct of the Program are allocated.



                       Page 33                                    GAO/AFMD-90-14   Financial   System Actions
                            Chapter 3
                            Federal Agency Financial Systems Program
                            Has Been Helpful but Improvements  Can
                            Be Made




                            Another key to the ultimate success of the Program is the development
Comprehensive               of a comprehensive financial systems strategy which clearly defines the
Financial Systems           objectives of the Federal Agency Financial Systems Program. Agencies
Striategy Has Not Been      generally were not aware of, or did not agree on, whether a comprehen-
                            sive strategy existed. Much of this stems back to problems discussed in
Developed                   chapter 2 and general uncertainty about the role of the Program. A
                            clearly articulated strategy will give the Federal Agency Financial Sys-
                            tems Program greater focus and direction so that agencies understand
                            the relative priority of each financial management system initiative,
                            and, therefore, which initiative is most important.

                            In May 1989, Treasury’s Fiscal Service issued its Strategic Plan4 that
                            addresses some of the financial management system initiatives per-
                            formed by the Program. We believe the plan is an important first step in
                            developing a comprehensive financial systems strategy for the Program.


Agencies lincertain as to   Agency officials we interviewed either (1) did not believe that a strategy
Whether Strategy Exists     had been developed for implementing financial management reform ini-
                            tiatives or (2) had mixed opinions as to what constituted the Program’s
                            strategy. For example, officials in eight agencies did not believe a com-
                            prehensive strategy existed. Officials in the remaining 10 agencies dif-
                            fered as to what the strategy was, citing, among other documents, the
                            OMH management report, OMBCircular A-127, the agencies’ 5-year finan-
                            cial management system plans, and Reform ‘88 initiatives5 as the strat-
                            egy agencies were to follow. One agency official stated that because the
                            Financial Management Service does not have a comprehensive strategy,
                            there is little focus as to the relative priorities of the system improve-
                            ment initiatives. The agency official noted that the Program tended to
                            begin new projects before others had been completed. The official added
                            that the agency would welcome a strategy to help it implement financial
                            management initiatives.
                                                                                                                                      ,




                             ‘l’h~s Strategic I’lan was prcpawd by the’ Dcpartmtnt of the Treasury’s Office of the Fiscal Assistant
                            Sccrcttary. That office. togcthvr with its two hurcaus, tht Finawial Management Service and the
                            tllu-cau ot the Public TIcbt. make ut~ the Fwal Srrvicc.

                            ‘The Krform ‘88 managcmcnt mrprovcmcnt program was initiated by the R&dent            in 1982 It was
                            designed tar (I ) modcrnizc the t’tldrral govcrnmcnt by using up-to-datr technology and processes and
                            (2) base govtwmwnt programs on sound business management practices. .4 major goal of the program
                            wz. t.o mstall modern t’inam%rl managcmrnt systems to control the government’s cash flow and
                            ;tswts.




                            Page 34                                                 GAO/AFMD-90-14       Financial   System Actions
                         Chapter 3
                         Federal Agency Financial Systems Program
                         Has Been Helpful but Improvements  Can
                         Be Made




Program Officials        In February 1989, the former Director of the Financial Management Ser-
                         vice’s Federal Agency Financial Systems Program acknowledged that a
Acknowledge That         comprehensive strategy had not been prepared for Treasury and OMB
Comprehensive Strategy   approval. However, at that time, the Director believed that the various
Does Not Exist           components of a strategy had been developed, but not compiled into a
                         formal document. The Director told us that the Service had recognized
                         the merits of developing a comprehensive strategy in order to accom-
                         plish its mission efficiently and effectively. However, the Director stated
                         that to have prepared such a document would have meant diverting
                         resources from monitoring of agency financial management system
                         improvement projects, In discussing the results of our review with Pro-
                         gram officials in August 1989, they reiterated that a comprehensive
                         strategy still had not been prepared.

                          During our review, the Director stated that some of the Program objec-
                         tives are encompassed in the Financial Management Service’s overall
                         Tactical Plan and Strategic Plar~‘~With respect to the February 1987
                         Strategic Plan, our review disclosed that the plan deals in general, over-
                         all terms regarding the Financial Management Service’s role as lead
                         agency for financial management systems reform, but does not identify
                         the specific goals that are to be achieved. Also, the plan was issued prior
                         to the formation of the Program in March 1987. Regarding the Financial
                         Management Service’s Tactical Plan for April 1987, for June 1988, and
                         for April 1989, encompassing fiscal years 1988 through 1992, each plan
                         addresses, in increasing detail, the Service’s role as lead agency for
                         financial management systems reform. However, the plans do not
                         clearly show how all the objectives mesh to form a comprehensive, cohe-
                         sive strategy. Also, no Strategic Plan or Tactical Plan ranked the various
                         financial management system improvement initiatives. In addition, the
                         plans do not identify specific milestones for completing those initiatives.

                         Our review also disclosed that the May 1989 Strategic Plan developed
                         by the Department of the Treasury’s Fiscal Service does address
                         selected financial management system initiatives that are performed by
                         the Federal Agency Financial Systems Program. This strategy discusses
                         in somewhat more detail the status of financial systems priorities and
                         past accomplishments and establishes the strategies for 23 major federal
                         agencies reviewed by the Program. It also identifies selected short-term
                         concerns regarding the government’s progress in improving financial
                         management systems,

                         “The Financial MandlJement Service’s Tactical Plan and Strategic Plan both outline the initiatives   and
                         programs the agency has planned to accomplish its mission and goals.



                         Page 35                                                 GAO/AFMD-90-14       Fkancial   System Actions
              Chapter 3
              Federal Agency Financial Systems Program
              Has Been Helpful but Improvements  Can
              Be Made




              We believe the Fiscal Service’s May 1989 plan is an important first step
              to developing a comprehensive financial management systems strategy.
              The next step would be to expand the plan to identify the specific role of
              the Program, including how it fits into the long-range, governmentwide
              financial management improvement plan discussed in chapter 2, and
              disseminate it to all federal agencies in order for all concerned to be
              fully aware of and recognize the role of the Federal Agency Financial
              Systems Program.


              Given the current state of the financial management systems in the fed-
Conclusions   eral government, the challenge given the Federal Agency Financial Sys-
              tems Program was formidable. The Program was established to provide
              operational responsibility for assisting federal agencies in their efforts
              to enhance their financial management environment. For the most part,
              agency and OMB officials thought the Program was attempting to accom-
              plish the mission that it had been given. However, as with any new pro-
              gram, there are areas in which improvements can be made.

              The roles and responsibilities of the Federal Agency Financial Systems
              Program need to be clearly defined. The establishment of a comprehen-
              sive financial management systems strategy for the Program should
              clear up the uncertainty among agencies as to the role of the Program in
              financial management reform and how the Program plans to ensure that
              governmentwide initiatives are implemented uniformly and effectively.
              Regarding the Program’s role of providing technical assistance on
              governmentwide issues, most agency, OMB, and Treasury officials agree
              that Program personnel do not have the expertise to provide agencies
              the technical assistance needed to assist in the design, development, and
              implementation of financial management systems. OMH'S not having clar-
              ified what it perceives the Program’s financial management system
              reform responsibilities to be has affected the Program’s ability to pro-
              vide the information needed by OMB for making top-level agency and
              governmentwide decisions and by the agencies to ensure the develop-
              ment of modern financial systems for the federal government. These
              systems should meet the core financial requirements and conform to the
              Comptroller General’s standards. Program officials have stated that a
              lack of resources has hindered their lead agency reform efforts and may
              affect future initiatives. OMR and Treasury officials agree that eight peo-
              ple for the entire federal government is not sufficient to achieve the
              objectives outlined in the memorandum of understanding.




              Page 36                                    GAO/AFMD-90-14   Financial   System Actions
                      Chapter 3
                      Federal Agency Fiiancial  Systems Program
                      Has Been Helpful but Improvements   Can
                      Be Made




                      We recommend that the Director of the Office of Management and
Recommendations       Budget and the Secretary of the Treasury, together, clarify the role of
                      Treasury’s Financial Management Service’s Federal Agency Financial
                      Systems Program. The Director of the Office of Management and Budget
                      should then ensure that the Service is provided sufficient resources to
                      effectively fulfill the Program’s role.

                      Once the role is clearly defined, we also recommend that the Secretary
                      of the Treasury, in consultation with OMB, issue a comprehensive finan-
                      cial management systems strategy for the Federal Agency Financial Sys-
                      tems Program, This strategy should be in concert with the long-range,
                      governmentwide financial management improvement plan being devel-
                      oped by OMB and the CFO Council. Once developed, the strategy should be
                      communicated to all federal agencies,


                      Regarding the Federal Agency Financial Systems Program, OMB believes
Agency Comments and   that, although more could have been accomplished, the Program staff
Our Evaluation        has provided valuable information and assistance on agencies’ systems
                      improvement efforts. OMB stated that it would describe-the roles and
                      responsibilities of the various parties involved in financial systems
                      improvements, including that of the Program, in a strategy document.
                      OMB plans to include the strategy document in the governmentwide
                      financial plan currently being developed and scheduled to be issued in
                      May 1990. OMB also plans to consider, during preparation of the 1992
                      Budget, resource requirements for improving the government’s financial
                      systems.

                      The Department of the Treasury, in commenting on this report, agreed
                      that there is a need to clarify the roles of the different parties involved
                      in the financial management systems improvement initiative, including
                      that of the Program. Treasury believed that the Program staff per-
                      formed the task assigned under the memorandum of understanding, but
                      agreed that more could be accomplished if additional resources are pro-
                      vided. Treasury agreed that the clarification of the Program’s role and
                      the amount of assistance to be provided to agencies by the Program
                      staff should be more fully defined in the financial management improve-
                      ment plan currently being formulated by OMR and the CI”OCouncil.




                      Page 37                                     GAO/AFMD-90-14   Financial   System Actions
Appendix I

Memorandum of Understanding Between OMB
and Treasury


                                     EXECUTIVE     OFFICE OF THE PRESIDENT
                                       OFFICE OF MANAGEMENT    AND BUDGET
                                               WASHINGTON. DC 20503
                                                                                February     2, 1987
             MEMORANDUMFOR HEADS OF DEPARTMENTSAND AGENCIES
             FROM:

                                                 Baker,er III
                                                          IX1
                                  Secretary       of the
             SUBJECT:             Joint OMB - Treasury          Initiative      For Financial
                                  Management Systems

                    This memorandum is to announce that the Financial                  Management
             Service     (FMS) of Treasury        is now designated      as lead agency with
             operational      responsibility        for financial     management systems
             reform.      This follows       on their   successes with lead agency
             assignments      for cash and credit         management, and is a vital       part of
             the cooperative       program established          by the central   financial
             agencies     in the August 14, 1986 joint            memorandum.
                      Under the attached          Memorandum of Understanding.                OMB will
             continue      to establish        program policy           and direction,      provide
             overall     guidance,       resolve     interagency         issues,     and set broad
             priorities.         FMS will      work closely          with agencies      to provide
             technical       assistance       and other support            in achieving     compliance
             with Governmentwide            standards       and requirements.           FMS will monitor
             agency progress          and report       periodically          to OMB. FMS and OMB will
             work together         to set specific          priorities         and goals for departments
             and agencies.           FMS will     also offer         cross-servicing      for
             administrative          accounting      and payments in 1988.
                    This follows     a number of significant       accomplishments        over the
             past several      years under Reform '88.       The legislative         framework
             was established       by the Federal Managers’      Financial      Integrity     Act.
             The General ACCOUntinQ       Office   followed   up with governmentwide
             standards    for accounting     and internal    control,     which are being
             implemented     in the manner required       by regulations      issued by the
             Office    of Management and Budget.
                     Program agencies       have responded by developing      inventories      of
             financial     systems,     by evaluating   these systems for conformance
             with standards         and requirements,   by taking  immediate action       to
             remedy areas of nonconformance,           and by committing    themselves      to
             S-year plans for systems reform.




                     Page 38                                             GAO/AFMD-90-14Financial System Actions
        Appendix I
        Memorandum   of Understanding   Between
        OMB and Treasury




        In addition,      many agencies have successfully             used off-the-
shelf     financial     systems rather      than relying    on expensive       and time
consuming custom development.               The Federal Bureau        of
Investigation,        the Railroad     Retirement     Board, the Maritime
Administration,         and the PMS have all recently          installed     such
systems -- and they are working well.                 Also, more and more
agencies       are employing    cross-servicing       arrangements.
Agriculture's        National   Finance Center now counts Education               and
Commerce among its customers.
         The quality    and uniformity     of Federal financial         information
is quickly      improving.      Working with an internal        Defense Department
chart of accounts,          the Department of Transportation          and six other
agencies     developed     a U.S. Government Standard General Ledger.                  All
agencies     should have implemented         the General Ledger by the end of
1988.      The General Ledger also contains           standard    data elements to
be tailored      to individual     agency needs.       The Joint     Financial
Management Improvement          Program is working       to assist    agencies      in
implementing       standard    data elements.      The Standard General Ledger
and the Standard data elements will              be used by agencies         for both
OMB reports      and new Treasury      reporting    requirements.
      We wish you success in your             efforts   to reform your financial
systems as part of an effective,              well-managed    Government..




        Page 39
        Appendix I
        Memorandum    of Understanding              Between
        OMEI and Treasury




    EXECUTIVE   OFFICE OF THE PRESIDENT                            DEPARTMENT       OF THE TREASURY
      OFFICE OF MANAGEMENT  AN0 BUDGET                                         WASHINGTON
                 WASHINGTON.   D.C.   20503



                                                                                       FEB 2 I987

                     MEMORANDUMOF UNDERSTANDINGBETWEEN
             THE DEPUTY DIRECTOR, OFFICE OF MANAGEMENTAND BUDGET
                                     AND
                     THE UNDER SECRETARY OF THE TREASURY
Purpose
The purposes           of the memorandum are:
        1.    To confirm    the commitment of the Office     of Management
              and Budget and the Department of the Treasury           to work
              cooperatively     to improve Federal financial       management
              systems    and clarify   the roles and responsibilities       of
              the two organizations.
        2.    To designate   the Financial      Management  Service of the
              Treasury   as Lead Agency with operational        responsibility
              for improving    Federal  financial     management systems.
        3.    To designate    the Financial     Management Service as Lead
              Agency with operational       responsibility  for providing
              accounting   services   to agencies on a reimbursable       basis
              under the President's      Reform ‘88 Management    Improvement
              Program.
Program Objectives
The objectives             of the       financial         management systems              program         are
to:
    o    Achieve full   compliance with ONB Circular                                A-127,
         "Financial   Management Systems;"
    0    Consolidate           and streamline                 systems   at all      levels;
    0    Increase      the comparability,                      accuracy,     timeliness,
         and reliability      of financial                      information;       and
    0   Provide the            utmost         in service         to managers        and
        other report             users.

Roles    and Responsibilities
The Office     of Management and Budget will                            establish    program policy
and direction,     provide   overall   guidance,                         resolve  interagency
issues,    and set broad priorities.        Office                        of Management and Budget
will   oversee the program thcough        management                         and budget reviews
with the agencies      and through   information                          and analysis    provided  by




        Page 40                                                         GAO/AFMD-90-14        Financial     System Actions
         Appendix I
         Memorandum   of Understanding    Between
         OMB and Treasury




                                              -2-

Financial      Management Service.      Office   of Management and Budget
will   consult    with Financial     Management Service    prior to the
issuance    of new policy     guidance and ensure that Financial       Manage-
ment Service      has adequate resources       to carry out its responsibili-
ties in this program.
The Financial      Management Service will       be responsible     for oversight
of agency implementation      of approved plans.         This will     include
working with the agencies       to implement needed improvements,
tracking   agency progress     against   goals,    and providing     periodic
progress   reports    and agency profiles      to the Office     of Management
and Budget.
The Financial     Management Service will       participate     fully      in the
management reviews dealing      with financial        systems.      Financial
Management Service and the Office       of   Management and Budget will
work together    on setting  specific   priorities         and will    jointly
review,  negotiate,    and approve quantitative          goals for the agencies
and departments.
The Financial         Management Service will             devel.op the capability        to
offer     administrative         accounting      services     to agencies      through the
Service's      Regional       Financial     Centers.       These services        will be
integrated      with the services           currently      provided    for payment and
collection.          At the outset,        Financial      Management Service will
offer     accounting       services     to smaller      agencies    that do not have
cross-servicing          arrangements.         Financial      Management Service will
target      16 of the smaller         agencies      not currently      cross-serviced       for
implementation          by the end of 1988.            Eventually,     Financial
Management Service will              offer    any agency financial          services   as an
alternative        to building       and maintaining        an agency-specific
accounting      system.        The system will         comply fully      with the OEEice
of Management and Budget Circular                  A-127 and will       provide
electronic      certification         and message authentication;             a secure,
nationwide       telecommunications           network;     and modern, compatible
computer systems and applications.


Approved:

                ffice   of Management and Budget


Approved :
              George D. 4, uld
              Under Secretary        of the     Treasury




         Page41                                             GAO/AFMD-90-14     Financial   System Actions
Appendix II

Departments and Agencies Included in
Our Review


               Department of Agriculture
               Department of Commerce
               Department of Defense
               Department of Education
               Department of Energy
               Department of Health and Human Services
               Department of Housing and Urban Development
               Department of the Interior
               Department of Justice
               Department of Labor
               Department of State
               Department of Transportation
               Department of the Treasury
               Department of Veterans Affairs
               Environmental Protection Agency
               General Services Administration
               National Aeronautics and Space Administration
               Small Business Administration




               Page 42                             GAO/AFMD-9&14   Financial   System Actiona
Appendix III

Financial System Improvement Projects ayld
Related Estimated Costs


                Dollars     in thousands
                                                                                                             Estimated cost
                Agency                                  -___            Projects             Systemsb            of projects
                Agriculture                                                   14                         4              $168,815
                Commerce                               __-                        6                      5                18,619
                Defense
                              _____
                   Air Force
                -__--.___                      __~
                                                       ___ -____                  8                   13                 180,557
                   Army                                                           8                  41                  308,308
                   Navy                                                       12                      18                 721,846
                                                        ___
                   Defense       Logistics Agency                                 2                    2                    8,761
                                                                                                    __.____
                   Defense       Security       Assistance
                       Agency               ____             _-                   0                      0                         0
                Education                                                         5                      5                13,507
                ~__.
                Energy                                                            7                      6                11,988
                Health      and Wuman Services                    ___          8
                                                                              ___~__-                11                   21,678
                                                                                                                           .__
                Housing       and Urban Development                           13    ~.__                 8                 2,350
                                                                                                              __~___
               Interior
               -._                                                                4                      4                17,222
                                              --~         ~                                                              --
               JusticeC               --__-                                   21                       6.                 92,768
                                                                                                               ___.__~
               Labor                                                              6                    6                  52,216
               State                                                              8                   8__--.__            53,310
               Transportation              ___.-_            .-___                1                   1                   17,600
                                                                                      ~___                   -.__              .~
               Treasury                                                      54                      28                 309,502
                                                                                                                      _____
               Veterans       Affairs”                                         5                     13                   13,534
               invironmental             Protection -- Agency_~                9                      8-.                 14,922
               General Services Administration                                14      -                          ~-__     66,254
                                                                                      ~_____I-..~__~. 14
               National Aeronautics and Space
                 Administration         ~--                                   2                       2                   28,500
               Small
               -..-  Business   AdministratIon
                          ____-___                                           27                       7                    7,622
                                                                            234                    210            $2,129,879
               The system Improvements and related costs were reported by agencies in their fiscal year 1989 hnan-
               cial management plans

               “This column represents all systems affected by system improvements         as identified by agencies In their
               financial management plans

               ‘For the Departments of Justlce and Veterans Affairs, the amounts shown for total estimated cosi repre-
               sent the amounts reported for capital Investment for financial system Improvements




               Page    43                                                GAO/AFMD-90-14        Financial     System     Actions
Appendix   IV

Comments From the Office of Management
and Budget


                                         EXECUTIVE      OFFICE OF THE PRESIDENT
                                             OFFICE   OF MANAGEMENT            AND     BUDGET
                                                      WASHINGTON         0.C   20503


                                                        March      27,     1990



                Mr. Donald H. Chapin
                Assistant Comptroller General
                Accounting and Financial Management Division
                Unired States General Accounting Office
                Washington, D.C. 20548

                Dear Mr. Chapin:

                        This is in response to your request for comments on the January 1990 draft report
                enrirled Addirional Actions Needed to Lmoro~e Federal Financial Ma-t            SytemS.

                        Let me begin by stating that we agree with your principal findings: (1) the
                Government’s financial systems remain inadequate notwithstanding the expenditure of
                billions of dollars; and (23 additional projects are being undertaken without the benefit
                of an adequate Government-wide financial management improvement plan.

                       Nonetheless, we believe you should give some credit to what has been, and is
                being, accomplished:

                             Significant progress has been made in developing govermnent-
                             wide standards (e.g., Standard General Ledger, CORE Financial
                             Systems Requirements, and data standards).

                             System upgrades are underway in every major agency, with
                             several agencies having recently converted totally to a new
                             system or converted the first bureaus in a phased
                             implementation   approach (e.g., Transportation, Energy,
                             Interior, HHS, Labor, and EPA).

                             The cross-servicing program continues to eliminate redundant,
                             obsolete systems. For example, Commerce, HUD, Treasury,
                             SBA, Smithsonian and several others use the National Finance
                             Center payroIl system; and over 50 small agencies now receive
                             all financial services on a cross-servicing basis. Cross-
                             servicing is also expanding into other areas such as property
                             accounting, grant payments, administrative payments, etc.

                             Agencies are using off-the-shelf software to avoid developing
                             custom systems. We expect to add two more vendors to the
                             GSA schedule within the next six weeks. This program has




                        Page 44                                                         GAO/AFMD-90-14   Financial   System Actions
         Appendix IV
         Comments From the Office   nf Management
         and Budget




                                                                                             2

              encouraged vendors to begin developing related systems for
              the Federal market. For example, one firm has recently
              developed software for vendor/contractor payments, and
              another has developed payroll software; others have developed
              travel modules.

Some progress has been made over the last three or four years.

        c
        with        tothed                                                    erit
you are correct in pointing out that not as much progress has been made as should have
been. The CFO Council’s framework developed in July 1989 needs, as you point out, to
be translated into a concrete plan which can guide the agencies’ efforts. This is
underway as the GAO representatives, who attend our CFO Council meetings, know. The
draft Government-wide Financial Systems Information Strategy document, which was
circulated to the CFO Council at its February 1990 meeting, addresses standards,
reporting requirements, financial statements, and financial systems development and
linkage. The document is now being expanded to cover the steps necessary to bring
systems into compliance with the CORE Financial Systems Requirements as discussed in
the JFMIP principals meeting which Director Darman convened last fall. It will also
address on-going systems improvement initiatives mentioned in your report such as cross-
servicing and use of off-the-shelf software.

        Most important, the Plan will, as you suggest, rank and direct the numerous
efforts under way in a way that avoids duplication of effort and delays. It will also
provide a strategy for developing and integrating individual agency accounting, financial
information and systems to ensure adequacy and consistency of information, together
with the milestones and resources required to implement the strategy.       We anticipate
completing Council review in April and issuing the Plan in May. The FY 92 Budget will
reflect implementation of the Plan.

       With n%ud to the Federal Mcv        Financial !%tems Prornam, we plan to include
a section in the strategy document on managing systems improvement which will more
clearly describe roles and responsibilities of OMB, Treasury and the agencies in the
Program. GAO’s role should also be described, and we will be in touch with you shortly
to develop the appropriate wording. We will also describe responsibilities for supporting
organizations such as the CFO Council, PCMI, and PCIE. These organizations can help
with effective coordination and management of the Program. The recent PCIE Status
Ebort on DeveloPment of Accounti        Svstems in the Federal Govemment is an example.

       Your report also indicates that Treasury has provided little technical assistance and
feedback to the agencies with respect to financial management systems reform. tile
not as much has been done as might have been done to implement the 1987 OMB-
Treasury agreement, the Federal Financial Systems Program sraff has provided valuable




         Page 45                                          GAO/AFMD-90-14   Financial   System Actions
         Appendix JY
         Comments From the Office   of Management
         and Budget




                                                                                            3
information and assistance to OMB in policy oversight and monitoring of agency systems
improvement efforts. Treasury has also supported the A-127 program by fostering user
groups for the off-the-shelf software initiative, has assisted in the Standard General
Ledger effort (they chair the interagency group that maintains the Ledger), and
developed a tracking system for key elements of the agencies’ five-year plans. They have
worked closely with OMB in developing the concept and strategy for integration of
Treasury, OMB, and Agency financial systems and with GAO and OMB on standards
development. While FMS accounting cross-servicing has not proceeded as quickly as
planned, cross-servicing has been implemented for two small agencies and
implementation of cross-seticing for Office of the Secretary components within Treasury
is underway.

        In terms of resources, it can legitimately be argued that more is needed. We wiB
be looking at resource requirements in the preparation of the 1992 Budget. In the 1991
Budget, eight staff were added for “Project USA” in addition to the eight staff in the FMS
systems program. This project will identify models of financial management excellence,
outline program managen fiscal obligations and financial responsibilities, identify
minimum financial information needs of program managers, and address related areas for
establishing a comprehensive approach to improving the Government’s financial
management. We expect this project to provide input to future OMB policy development
and to our systems strategy document.

       Thank you for the opportunity to comment on your draft report.           I would be
pleased to discuss these thoughts with you in person.

                          Sincerely,




                          Frank Hodsoll
                          Executive Associate Director




        Page 46                                          GAO/AFMB96-14   Financial   System Actions
Appendix V

Comments From the Department of
the Treasury


                                                      DEPARTMENT    OF THE TREASURY
                                                               WASI-IINGTON




                                                                              March   2,   1990
             /LSSISTANT   SECRETARY




                            Dear      Mr.   Chapin:
                                   Thank you for the Opportunity      to review the General
                            Accounting Office (GAO) draft report entitled            "Additional       Actions
                            Weeded to Improve Federal Financial        Management Systems" dated
                            January 1990. We are in fundamental agreement with you that it
                            is important that roles, responsibilities,            and expectations        be
                            clear and realistic      in any financial    management endeavor.            This
                            is particularly     true in undertaking    the improvement of the
                            Government's large and decentralized         financial    management
                            systems.     The roles that the Office of Management and Budget
                             COMB)r the GAO, Treasury's     Financial    Management Service (FMS) and
                            the agencies must carry out effectively,           while interrelated         and
                            interdependent,     are quite different.       The report states OMB plans
                            to clarify     the roles of the different      parties   involved in the
                            improvement initiative.       FMS would welcome further         clarification
                            and definition     of these roles.
                                   The Memorandum of Understanding    between Treasury and OMB
                            clearly   gives OMB the responsibility    for establishing     program
                            policy   and direction.     As you know, OMB and the CFO Council      are
                            in the process of formulating      a plan for financial    systems.    We
                            are supporting     this effort.
                                   We believe it is imperative             that the GAO help focus energy
                            and resources in Government on improving basic results                   that we
                            all should expect from accounting systems.                  These include classic
                            Government funds control,          control over payments and collections
                            and basic control       over the information          used for preparing
                            internal    and external      reports.       The GAO should play a larger role
                            in identifying     deficiencies        and in suggesting to OMB and FMS
                            where improvement priorities            lie.     Obviously,   in the near term,
                            financial    risk should influence           investment decisions more than
                            across the board compliance with our respective                 standards,
                                    Your report suggests that FMS should do more to assist
                            agencies.      We agree that more might be done in the context of
                            OMB's new plan, if resources are provided.      However, we do not
                            believe that actual development can be performed and managed by a
                            central    staff in OMB or Treasury.
                                    Most agency systems are complex because they must account
                            for peculiar       and specific    legislative    and programmatic reguire-
                            ments.       The information    requirements     imposed by OMB and FM9 are
                            generally      nominal.     Only agencies can decide on the design and
                            installation       of their   systems.      FMS as a central  agency is not in
                            a position,      to design, quality       assure, and install   civilian  or



                                 Page47                                         GAO/AFMD-9014     Financial   System Actions
             Appendix V
             Comments From the Department      of
             the Treasury




Page 2 - Mr. Donald H. Chapin


defense         systems.    OMB and F'MSnever had such an expectation.                                If
some     particular       agencies had that expectation, I agree that
should        be clarified.
        The principal   task assigned to FMS under the MOUwas to
monitor and report to OMB agency progress against the A-127 five-
year plan.      Our small program staff did that job and provided
significant     amounts   of staff support to OMB in their periodic
progress reviews nith Federal agencies.
      The A-127 program in F’lG -- the Federal Agency Financial
Systems Program -- made a number of other significant       contribu-
tions within a short time.     These contributions include:
         0     creating        an environment where agencies now look at cross-
               servicing        or off-the-shelf software programs;
         0      instituting           user groups for agencies        using      off-the-shelf
                software:
         o      promoting and tracking  the installation                    of the
                Governmentwide Standard General Ledger;
         0      encouraging Treasury,               itself,   to use FMS as a cross-
                servicing  organization;
         o     developing an OMB/FMStracking  system for important
               aspects of the 5-year plans submitted to OMB;
         0      creating a more coherent environment                  for     central         agencies
                to make evaluations  and decisions;
         0      coordinating           OMB/agency policy       reviews;
         o developing                agency/OMB/FMS dialogue:
         0     working with the Chief Financial    Officer's                      (CFO)       Council
               to develop Governmentwide strategy;     and
         0     working        with     the GAO to help create        standards.
       The program increased the awareness of OMB/FNS that they are
a part of the problem.      These agencies began budgeting and
building   their own systems to ease operational     burdens on
agencies and to improve integrity.       FMs is developing or
improving the following     systems:
         0     System 90 - upgrade and create an integrated                             computer-
               based telecommunications processing system;




             Page 48                                             GAO/AFMD-90-14         Financial   System Actions
-
              Appendix    V
              CommentsFromtheDepartmentof
              the Treasury




    Page 3 -      Mr.     Donald H. Chapin                                                                      1
          0      STAB - budget execution              system:
          0     ADEPT - analytical              asset and liability       data base;
          0     GOALS - electronic              data collection       system:
          o      Cashlink       - collections        system;
          o      Electronic  certification             - improve security         and integrity
                 of payments; and
          o      FMs is working with OMBto resolve integration   and
                 elimination  of duplicative accounting data submitted                          via
                 the SF 133 and the TFS 2108.
            As your report indicates,   resources are scarce.     FMS has
    dedicated significantly     more resources to building    strong
    programs in cash management, credit and debt collection          due to
    their value Governmentwide.       These programs are responsible     for
    billions    of dollars.
           FMS can have a greater      impact in these arenas providing
    products,    services,    management guidelines    and models.     FMS will
    continue,    in cooperation    with OMB, to support the financial
    systems program in areas where it can make a contribution.               At
    present these areas include monitoring          and tracking   plans and
    developing     a cooperative   management environment      between central
    and program agencies for financial        management system improve-
    ments.     As OMBdevelops its plan we will work to support it with
    additional     staff and resources as they are provided in the budget
    process.
         I am confident   that with your personal support and that of
    the Comptroller   General, working through the Joint Financial
    Management Improvement Program and the CFO Council, the PCMI and
    the President's   Council on Integrity  and Efficiency (PCIE), we
    can make great progress in the next few years.
                                                Sincerely,

                                        ,,&dL+*
                                            Gerald Murphy
                                   Fiscal Assistant   Secretary

    Mr. Donald H. Chapin
    Assistant  Comptroller   General
    General Accounting Office
    Accounting and Financial
      Management Division
    Washington,          D-C.    20548




              Page49                                              GAO/AFMlMO-14    Financial   System Actions
 Appendix VI

 Major Contributors to This Report

                                                            ,

                        Darby W. Smith, Assistant Director, ;202) 275-9482
Accounting and          Ronald B. Bageant, Senior Accountant
Financial Management    James E. Stringfellow, Accountant
                        Gwendolyn M. Torain, Accountant
Division, Washington,
                 -
DC.




(901449)                Page 60                                 GAO/AJ?MD-90-14   Financial   System Actions
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