oversight

Financial Management: Federal Financial Management Improvement Act Results for Fiscal Year 1998

Published by the Government Accountability Office on 1999-10-01.

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

                United States General Accounting Office

GAO             Report to Congressional Committees




October 1999
                FINANCIAL
                MANAGEMENT

                Federal Financial
                Management
                Improvement Act
                Results for Fiscal Year
                1998




GAO/AIMD-00-3
                                                                                                    Comptroller General
                                                                                                    of the United States
United States General Accounting Office
Washington, D.C. 20548



                                    B-283317                                                                                     Leter




                                    October 1, 1999

                                    The Honorable Fred Thompson
                                    Chairman
                                    The Honorable Joseph I. Lieberman
                                    Ranking Minority Member
                                    Committee on Governmental Affairs
                                    United States Senate

                                    The Honorable Dan Burton
                                    Chairman
                                    The Honorable Henry A. Waxman
                                    Ranking Minority Member
                                    Committee on Government Reform
                                    House of Representatives

                                    The historic inability of many federal agencies to accurately record and
                                    report financial management data on both a year-end and an ongoing basis
                                    for decision-making and oversight purposes continues to be a serious
                                    weakness. To improve the accountability and credibility of the federal
                                    government and restore public confidence, as part of a series of
                                    management reform legislation,1 the Congress passed the Federal Financial
                                    Management Improvement Act (FFMIA) of 1996, Public Law 104-208.
                                    FFMIA requires auditors for each of the 24 major departments and agencies
                                    named in the Chief Financial Officers (CFO) Act2 (referred to as CFO
                                    agencies) to report, as part of their audit report on the agencies’ annual
                                    financial statements, whether the agencies’ financial management systems
                                    comply substantially with three requirements—(1) federal financial
                                    management systems requirements, (2) applicable federal accounting
                                    standards, and (3) the U. S. Government Standard General Ledger (SGL)3 at
                                    the transaction level. These requirements are critical for ensuring that


                                    1
                                    Other management reform legislation includes the Chief Financial Officers Act of 1990, the
                                    Government Management Reform Act of 1994, the Government Performance and Results
                                    Act of 1993, and the Clinger-Cohen Act of 1996.
                                    2
                                     FFMIA also applies to agency components required to be audited under 31 U.S.C. 3521(e).
                                    3
                                     The SGL provides a standard chart of accounts and standardized transactions that agencies
                                    are to use in all their financial systems.




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                   agency financial management activities are consistently and accurately
                   recorded, and timely and uniformly reported throughout the federal
                   government. Departments and agencies must comply with these
                   requirements in order to maximize their performance and ensure their
                   accountability.

                   To aid congressional oversight and keep the Congress advised of the status
                   of federal financial management, that legislation also requires that we
                   report annually on FFMIA implementation by October 1 of each year. Our
                   report addresses information concerning (1) compliance of CFO agencies’
                   financial systems with FFMIA’s requirements, (2) whether CFO agencies’
                   financial statements have been prepared in accordance with applicable
                   accounting standards, and (3) agencies’ plans to ensure that their systems
                   comply with FFMIA requirements. Last year we issued the second of our
                   annual reports under FFMIA; it covered fiscal year 1997.4



Results in Brief   As a result of the audits of CFO agencies’ financial statements and FFMIA’s
                   requirements, agencies are more aware of their financial management
                   weaknesses and have started addressing them. However, in terms of
                   agency auditors’ assessments of compliance with FFMIA, there has been
                   little discernible progress since last year. For the agencies whose fiscal
                   year 1998 audit reports had been issued as of September 14, 1999, those
                   whose financial management systems were not in compliance with FFMIA
                   in fiscal year 1997 were still not in compliance in fiscal year 1998. Issues we
                   identified in our report last year under FFMIA, such as efforts to implement
                   new accounting standards,5 the age and condition of many agencies’ critical
                   financial systems, and competing demands associated with Year 2000




                   4
                   Financial Management: Federal Financial Management Improvement Act Results for
                   Fiscal Year 1997 (GAO/AIMD-98-268, September 30, 1998).
                   5
                    Some of the new requirements, which were issued in 1995 and 1996 and became effective in
                   fiscal year 1998, include the application of managerial cost accounting concepts and
                   preparation of the new Statements of Financing and Budgetary Resources.




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computer conversion issues6 proved to be continuing significant challenges
to agencies.

For fiscal year 1998, auditors for 17 of 207 CFO agencies reported that the
agencies’ financial systems did not comply substantially with FFMIA’s
requirements. Although the statutory reporting deadline is March 1, the
remaining four CFO agencies, as of September 14, 1999, had not yet issued
their audited financial statements for fiscal year 1998. All four of the
agencies were found by their auditors to be noncompliant with FFMIA for
fiscal year 1997.

Auditors reported that the financial systems of 11 of these 17 agencies
found to be noncompliant in fiscal year 1998 were noncompliant with all
three FFMIA requirements—federal financial management systems
requirements, applicable federal accounting standards, and the SGL.
Auditors for 16 of the 17 agencies had reported for fiscal year 1997 that the
agencies likewise did not comply with FFMIA. The seventeenth agency was
reported as complying with the requirements of FFMIA in fiscal year 1997
but was found to be noncompliant with systems requirements in fiscal year
1998 due to auditors’ interpretations of what constitutes substantial
compliance. Further, in some agencies, factors that contributed to systems
being found noncompliant increased, in part because agencies had
problems implementing new accounting standards that became effective in
fiscal year 1998.

Our audit of the financial statements for the U.S. government for fiscal year
19988 also showed that many agencies did not meet applicable accounting
standards. As was the case for fiscal year 1997, the inability of agencies to


6
 For the past several decades, information systems have typically used two digits to
represent the year, such as “99” for 1999, to conserve electronic data storage and reduce
operating costs. In this format, however, 2000 is indistinguishable from 1900 because both
are represented as “00.” As a result, computer systems or applications that use dates or
perform date- or time-sensitive calculations may, if not modified, generate incorrect results
beyond 1999.
7
 The statutory reporting deadline for audit reports discussing the results of the fiscal year
1998 financial statement audits for the CFO agencies was March 1, 1999. As of
September 14, 1999, the Departments of Education and State, the Environmental Protection
Agency, and the Small Business Administration had not yet issued their fiscal year 1998
audited financial statements.
8
 Financial Audit: 1998 Financial Report of the United States Government (GAO/AIMD-99-
130, March 31, 1999).




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prepare financial statements in accordance with accounting standards
prevented us from being able to express an opinion on the government’s
consolidated financial statements. Although nine agencies whose audit
reports had been issued received unqualified opinions on their fiscal year
1998 financial statements, obtaining unqualified or “clean” audit opinions,
while an important objective, is not an end in and of itself. The key is to
take steps to continually improve internal controls and underlying financial
and management information systems so that these systems will generate
reliable, useful, and timely information on an ongoing basis, not just as of
the end of the fiscal year.

We issued a special series of reports this year that discusses major
management challenges and program risks that must be addressed to
improve the performance, management, and accountability of federal
agencies.9 In this series, we identified the ability to establish financial
management capabilities that effectively support decision-making and
accountability as one of the major challenges facing most federal agencies.
Agencies generally recognize the extent and severity of their financial
management deficiencies, and 18 of the 20 agencies, for which FFMIA
noncompliance was reported for fiscal year 1997, have prepared
remediation plans to address these problems. FFMIA requires that the
agency head, in consultation with the Office of Management and Budget
(OMB), prepare such a plan. OMB’s consultative role is important for
ensuring that agencies prepare effective remediation plans that adequately
address their serious financial management weaknesses. However, based
on our reviews and reports issued by agency Offices of Inspector General
(OIG), we found that some agencies did not submit their plans on time and
most of the remediation plans that were submitted did not address
financial management issues comprehensively; thus, it is questionable that
the plans form an adequate basis for correcting reported issues of
noncompliance. For example, one agency’s plan discussed corrective
actions for core financial management systems without addressing
weaknesses reported in feeder systems that produce the underlying data.
Therefore, we believe OMB should, as part of its consultative role, work
with the agencies to ensure that their remediation plans are submitted and
comply with the requirements outlined in the act.




9
 Major Management Challenges and Program Risks: A Governmentwide Perspective
(GAO/OCG-99-1, January 1999).




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                       Significant time and investment are needed for agencies to address and
                       correct long-standing financial management systems problems. Resolving
                       reported financial management weaknesses has been delayed by
                       competing demands associated with Year 2000 computer conversion
                       issues. Further, GAO reviews show that numerous federal agencies have
                       historically struggled with the development and implementation of large
                       information technology efforts which compound the resolution of these
                       problems. It will take time, concerted effort, and additional investment to
                       raise government financial management systems to the level of quality and
                       reliability envisioned by FFMIA.

                       OMB generally agreed that our report fairly presented the status of the
                       federal government’s implementation of FFMIA and concurred with our
                       recommendations. The Department of Treasury’s Financial Management
                       Service (FMS) also concurred with the report’s contents.



Background             The primary purpose of FFMIA is to ensure that agency financial
                       management systems routinely provide reliable, useful, and timely financial
                       information. With such information, government leaders will be better
                       positioned to invest scarce resources, reduce costs, oversee programs, and
                       hold agency managers accountable for the way they run government
                       programs. Compliance with federal financial management systems
                       requirements, applicable accounting standards, and the SGL are the
                       building blocks to help achieve these goals.


Financial Management   The financial management systems policies and standards prescribed for
System Requirements    executive agencies to follow in developing, operating, evaluating, and
                       reporting on financial management systems are defined in OMB
                       Circular A-127, Financial Management Systems, which was last revised in
                       June 1999. Circular A-127 references the series of publications, entitled
                       Federal Financial Management Systems Requirements, issued by the Joint
                       Financial Management Improvement Program (JFMIP),10 as the primary
                       source of governmentwide requirements for financial management
                       systems.



                       10
                        JFMIP is a cooperative undertaking of OMB, the Department of Treasury, the Office of
                       Personnel Management, and GAO working with operating agencies to improve financial
                       management practices throughout the government.




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Since we reported last year, JFMIP has revised four of these publications—
Core Financial System Requirements (originally issued in September 1995),
Human Resources & Payroll Systems Requirements (originally issued in
May 1990), Direct Loan System Requirements (originally issued in
December 1993), and Travel System Requirements (originally issued in
January 1991). Also, JFMIP issued an exposure draft for a revised version
of Seized Property and Forfeited Assets Systems Requirements (June 1999)
and is planning to issue exposure drafts for Grant Financial System
Requirements and a revised version of Guaranteed Loan System
Requirements by the end of September 1999. Table 1 lists the publications
in the Federal Financial Management System Requirements Series and
their issue dates.



Table 1: Publications in the Federal Financial Management System Requirements
Series

 Federal Financial Management System Requirements (FFMSR)
                         Document                                Issue date
FFMSR-0                Framework for Federal Financial           January 1995
                       Management Systems
JFMIP-SR-99-4          Core Financial System Requirements        February 1999
JFMIP-SR-99-5          Human Resources & Payroll Systems         April 1999
                       Requirements
JFMIP-SR-99-9          Travel System Requirements                July 1999
FFMSR-4                Seized/Forfeited Asset System             March 1993
                       Requirements
JFMIP-SR-99-8          Direct Loan System Requirements           June 1999
FFMSR-6                Guaranteed Loan System Requirements       December 1993
FFMSR-7                Inventory System Requirements             June 1995
FFMSR-8                Managerial Cost Accounting System         February 1998
                       Requirements



To assist agencies and vendors in developing and implementing software
that complies with current financial management system requirements,
JFMIP has implemented a new testing process. JFMIP has established the
Program Management Office (PMO) which will be directly involved in the
new process. The PMO (1) establishes the systems testing requirements,
which significantly expands on the testing previously performed,
(2) administers the qualification tests to certify that vendor products meet
current JFMIP systems requirements, and (3) publishes the results and



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                     maintains a database of information for agencies and vendors about
                     financial systems requirements, business practices, and features of
                     certified vendor products. The database, which will be available on JFMIP’s
                     web site, will also provide access to qualification test results. Vendors have
                     submitted nine software packages to be qualified during the initial round of
                     testing. According to a JFMIP official, these test results will be made public
                     on October 1, 1999. Thereafter, the testing will be conducted upon request,
                     and qualified packages will be announced upon successful passage of the
                     test.

                     Effective in fiscal year 2000, OMB policy requires federal agencies that
                     acquire new core financial systems to use JFMIP qualified software.
                     According to JFMIP, the new process will provide tools and information to
                     help agencies make effective choices. Agencies must evaluate software
                     options for compatibility in their operational environment and for agency
                     specific requirements. As a result, we have issued several checklists11 to
                     help agencies implement and monitor their financial management systems
                     and to help management and auditors review the systems to determine if
                     they substantially comply with FFMIA.


Federal Accounting   Federal accounting standards, which agency CFOs use in preparing
Standards            financial statements and in developing financial management systems, are
                     recommended by the Federal Accounting Standards Advisory Board
                     (FASAB).12 FASAB recommends accounting standards after considering the
                     financial and budgetary information needs of the Congress, executive
                     agencies, other users of federal financial information, and comments from
                     the public. The three principals—the Comptroller General, the Secretary of
                     the Treasury, and the Director of OMB—then decide whether to adopt the
                     recommended standards. If they do, the standards are published by GAO
                     and OMB and become effective on the stated date.




                     11
                        Framework for Federal Financial Management System Checklist (GAO/AIMD-98-21.2.1,
                     May 1998), Core Financial System Requirements Checklist (GAO/AIMD-99-21.2.2, August
                     1999, exposure draft), Inventory System Checklist (GAO/AIMD-98-21.2.4, May 1998), and
                     System Requirements for Managerial Cost Accounting Checklist (GAO/AIMD-99-21.2.9,
                     January 1999).
                     12
                      In October 1990, the Secretary of the Treasury, the Director of OMB, and the Comptroller
                     General established FASAB to recommend a set of generally accepted accounting standards
                     for the federal government.




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FASAB has recommended and the three principals have approved
3 statements of accounting concepts and 14 statements of federal financial
accounting standards with various effective dates ranging from fiscal year
1994 through fiscal year 2001. The concepts and standards, as
recommended by FASAB and approved by its principals, are the basis for
OMB’s guidance to agencies on the form and content of their financial
statements and the government’s consolidated financial statements. Table 2
includes a list of concepts, standards, and interpretations13 along with their
respective effective dates.



Table 2: Statements of Federal Financial Accounting Concepts (SFFAC), Statements
of Federal Financial Accounting Standards (SFFAS), and Interpretations

Concepts
SFFAC No. 1             Objectives of Federal Financial Reporting
SFFAC No. 2             Entity and Display
SFFAC No. 3             Management’s Discussion and Analysis
Standards                                                                      Effective
                                                                               for fiscal
                                                                               yeara
SFFAS No. 1             Accounting for Selected Assets and Liabilities         1994
SFFAS No. 2             Accounting for Direct Loans and Loan Guarantees        1994
SFFAS No. 3             Accounting for Inventory and Related Property          1994
SFFAS No. 4             Managerial Cost Accounting Concepts and                1998
                        Standards
SFFAS No. 5             Accounting for Liabilities of the Federal Government 1997
SFFAS No. 6             Accounting for Property, Plant, and Equipment          1998
SFFAS No. 7             Accounting for Revenue and Other Financing             1998
                        Sources
SFFAS No. 8             Supplementary Stewardship Reporting                    1998
SFFAS No. 9             Deferral of Required Implementation Date for           1998
                        SFFAS No. 4
SFFAS No. 10            Accounting for Internal Use Software                   2001
                                                                                (Continued )




13
  Occasionally, FASAB clarifies existing federal accounting standards by providing
interpretations. An interpretation is a document of narrow scope that provides clarifications
of original meaning, additional definitions, or other guidance pertaining to an existing
federal accounting standard.




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Standards                                                                            Effective
                                                                                     for fiscal
                                                                                     yeara
SFFAS No. 11              Amendments to Accounting for Property, Plant and           1999
                          Equipment, Definitional Changes
SFFAS No. 12              Recognition of Contingent Liabilities Arising from         1998
                          Litigation: An Amendment of SFFAS 5, Accounting
                          for Liabilities of the Federal Government
SFFAS No. 13              Deferral of Paragraph 65-2—Material Revenue-               1999
                          Related Transactions Disclosures: Amending
                          SFFAS No. 7, Accounting for Revenue and Other
                          Financing Sources
SFFAS No. 15              Management’s Discussion and Analysis                       2000
Interpretations
No. 1                     Reporting on Indian Trust Funds
No. 2                     Accounting for Treasury Judgment Fund
                          Transactions
No. 3                     Measurement Date for Pension and Retirement
                          Health Care Liabilities
No. 4                     Accounting for Pension Payments In Excess of
                          Pension Expense
No. 5                     Recognition by Recipient Entities of Receivable
                          Nonexchange Revenue
                                                                (Continued from Previous Page)
a
 Effective dates do not apply to Statements of Federal Financial Accounting Concepts and
Interpretations.


SFFAC No. 3 on management’s discussion and analysis and SFFAS Nos. 10,
11, 12, 13, and 15 on internal use software, amendments to existing
standards, and management’s discussion and analysis were issued since we
reported last year. Also, FASAB has recommended three new Statements of
Recommended Accounting Standards (SRAS)—SRAS No.14, Amendments
to Deferred Maintenance Reporting (April 1999), SRAS No. 16,
Amendments to Accounting for Property, Plant, and Equipment;
Measurement and Reporting for Multi-Use Heritage Assets (July 1999), and
SRAS No. 17, Accounting for Social Insurance (August 1999). In addition,
FASAB is drafting recommended standards for supplementary stewardship
reporting for national defense property, plant, and equipment.




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                          The Accounting and Auditing Policy Committee (AAPC)14 assists in
                          resolving issues related to the implementation of accounting standards.
                          AAPC’s efforts result in authoritative guidance for preparers and auditors
                          of federal financial statements in connection with implementation of
                          accounting standards and the reporting and auditing requirements
                          contained in OMB’s Form and Content Bulletin and Audit Bulletin. To date,
                          AAPC has recommended and OMB has issued four technical releases (TR),
                          which are listed in table 3 along with their release dates.



                          Table 3: AAPC Technical Releases

                          Technical Release                                                         Release date
                          TR-1               Audit Legal Letter Guidance                            March 1, 1998
                          TR-2               Environmental Liabilities Guidance                     March 15, 1998
                          TR-3               Preparing and Auditing Direct Loan and Loan            July 31, 1999
                                             Guarantee Subsidies under the Federal Credit
                                             Reform Act
                          TR-4               Reporting on Non-Valued Seized and Forfeited           July 31, 1999
                                             Property




Standard General Ledger   The SGL provides a uniform chart of accounts and pro forma transactions
                          used to standardize federal agencies’ financial information accumulation
                          and processing, enhance financial control, and support budget and external
                          reporting, including financial statement preparation. The SGL is intended
                          to improve data stewardship throughout the government, enabling
                          consistent reporting at all levels within the agencies and providing
                          comparable data and financial analysis at the government level.15 In our
                          report on our audit of the financial statements for the U.S. government for
                          fiscal year 1998, we reported that the government’s inability to properly and
                          consistently compile information in the financial statements was
                          compounded by limitations in the federal government’s general ledger


                          14
                           In 1997, FASAB in conjunction with OMB, Treasury, GAO, the CFO Council, and the
                          President’s Council on Integrity and Efficiency, established AAPC to assist the federal
                          government in improving financial reporting.
                          15
                           SGL guidance is published in the Treasury Financial Manual. Treasury’s Financial
                          Management Service is responsible for maintaining the SGL and answering agency inquiries.




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                    account structure. We are working with OMB and Treasury to expand and
                    enhance the SGL structure.


Remediation Plans   FFMIA requires an agency head to determine, based on a review of the
                    auditor’s report on the agency’s financial statements and any other relevant
                    information, whether the agency’s financial management systems
                    substantially comply with the act. The agency head is required to make this
                    determination no later than 120 days after (1) the receipt of the auditor’s
                    report or (2) the last day of the fiscal year following the year covered by the
                    audit, whichever comes first. The auditor’s and the agency head’s
                    determinations of compliance may differ. If the agency head determines
                    that the systems do not substantially comply, FFMIA requires that the
                    agency head, in consultation with the Director of OMB, establish a
                    remediation plan to bring the systems into substantial compliance with
                    FFMIA’s requirements.

                    According to OMB guidance, remediation plans are to include corrective
                    actions, intermediate target dates, and resources necessary to achieve
                    substantial compliance with FFMIA’s requirements within 3 years of the
                    date the noncompliance determination is made. If, with the concurrence of
                    the Director of OMB, the agency head determines that substantial
                    compliance cannot be reached within 3 years, the remediation plan must
                    specify the most feasible date by which the agency will achieve compliance
                    and designate an official responsible for effecting the necessary corrective
                    actions. Per OMB guidance, agencies are to include remediation plans in
                    their annual agency financial management status report and 5-year plans
                    which are to be submitted to OMB in September of each year.



Scope and           In performing our work, we reviewed fiscal year 1998 audit results for the
                    20 CFO agencies that had issued audited financial statements as of
Methodology         September 14, 1999. We also reviewed (1) agency remediation plans,
                    (2) OIG reports on agency remediation plans, (3) OMB’s implementation
                    guidance for FFMIA, and (4) OMB’s 1999 Federal Financial Management
                    Status Report and Five-Year Plan. We did not independently verify or test
                    the reliability of the data in OMB’s report. In addition, we reviewed
                    applicable federal accounting standards and JFMIP publications. We also
                    interviewed agency managers and auditors at the 24 CFO agencies to
                    obtain their views on FFMIA implementation.




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                   We conducted our work from March through mid-September 1999 at the
                   24 CFO agencies and OMB in Washington, D.C., in accordance with
                   generally accepted government auditing standards. We requested
                   comments on a draft of this report from the Director of OMB and the
                   Commissioner of Treasury’s FMS or their designees. We received oral
                   comments from OMB’s Office of Federal Financial Management and the
                   Director, Program Integrity Division, FMS. These comments are discussed
                   in the “Agency Comments” section of this report.



Fiscal Year 1998   Although agencies are more aware of their financial management
                   weaknesses and have started addressing them, auditors’ assessments of
Results            agencies’ compliance with FFMIA’s requirements do not indicate
                   substantial progress since we reported last year. In their fiscal year 1998
                   audit reports, auditors for 17 of 20 CFO agencies that issued audit reports
                   reported that the agencies’ financial systems did not substantially comply
                   with FFMIA. In comparing the fiscal year 1998 results to the fiscal year
                   1997 results, we found that every agency (for which fiscal year 1998 results
                   were available) whose systems did not substantially comply with FFMIA in
                   fiscal year 1997 still did not comply for fiscal year 1998.

                   Of the 17 agencies, auditors reported that for fiscal year 1998, 11 were
                   noncompliant with all three FFMIA requirements; 17 were reported
                   noncompliant with systems requirements; 13 were reported noncompliant
                   with accounting standards; and 11 agencies were reported noncompliant
                   with the SGL. Auditors for three agencies—the Department of Energy, the
                   National Aeronautics and Space Administration, and the National Science
                   Foundation—reported that their agencies’ financial systems complied
                   substantially with FFMIA’s three requirements.16 The financial systems of
                   the four agencies—the Departments of Education and State, the
                   Environmental Protection Agency, and the Small Business
                   Administration—that had not yet issued audited financial statements by
                   September 14, 1999, were reported to be noncompliant with FFMIA’s
                   requirements in fiscal year 1997. Table 4 summarizes the auditors’ and
                   agencies’ determinations of substantial compliance with the requirements
                   of FFMIA for fiscal year 1998.



                   16
                    According to guidance in OMB Bulletin 98-08, receipt of a qualified audit opinion with
                   material weaknesses is an indication of noncompliance with FFMIA. The Department of
                   Energy received a qualified opinion that described a material weakness.




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Table 4: Summary of Auditors’ FFMIA Determinations and Agencies’ Responses

                                    Auditor’s
                                 determination
                                 of substantial                                                 Agency’s response to auditor’s
                                  compliancea     Areas of reported substantial noncompliance          determinationb
                                                  Systems            Accounting
Agency                           Yes    No        requirements       standards          SGL     Agree             Disagree
Department of Agriculture               X         X                  X                  X       X
Department of Commerce                  X         X                  X                  X       X
Department of Defense                   X         X                  X                  X       X
Department of Educationc
Department of Energy             X                                                              X
Department of Health and                X         X                  X                          X
Human Services
Department of Housing and               X         X                  X                  X       X
Urban Development
Department of the Interior              X         X                                             X
Department of Justice                   X         X                  X                  X       X
Department of Labor                     X         X                  X                  X       X
                      c
Department of State
Department of Transportation            X         X                  X                          X
Department of the Treasury              X         X                  X                  X       X
Department of Veterans Affairs          X         X                  X                  X       X
Agency for International                X         X                  X                  X       X
Development
Environmental Protection
Agencyc
Federal Emergency                       X         X                                                               Xd
Management Agency
General Services                        X         X                                             X
Administration
National Aeronautics and         X                                                              X
Space Administration
National Science Foundation      X                                                              X
Nuclear Regulatory                      X         X                  X                  X       X
Commission
Office of Personnel                     X         X                  X                  X       X
Management
                                                                                                                       (Continued )




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                                    Auditor’s
                                 determination
                                 of substantial                                                             Agency’s response to auditor’s
                                  compliancea     Areas of reported substantial noncompliance                      determinationb
                                                  Systems                  Accounting
Agency                           Yes    No        requirements             standards             SGL       Agree                 Disagree
Small Business Administrationc
Social Security Administration          X         X                                                                              Xe
Total                            3      17        17                       13                    11        18                    2
                                                                                                                (Continued from Previous Page)
                                             a
                                              OMB guidance states that lack of substantial compliance in any one of the three requirements results
                                             in lack of substantial compliance with FFMIA.
                                             b
                                              Agreement or disagreement is based on agency comments included in the auditors’ reports or
                                             interviews with agency management.
                                             c
                                              Audit report had not been issued as of September 14, 1999. Auditor reported systems were not in
                                             compliance with FFMIA in fiscal year 1997.
                                             d
                                              Federal Emergency Management Agency officials agreed that deficiencies exist and are preparing a
                                             remediation plan. However, the officials disagreed with the auditor as to whether the deficiencies are
                                             significant enough to warrant lack of substantial compliance.
                                             e
                                              Social Security Administration officials acknowledged that weaknesses in their systems exist, as
                                             reported by the auditors; however, the officials did not agree that these weaknesses caused a lack of
                                             substantial compliance with FFMIA.


                                             Based on our comparison of audit results for fiscal years 1997 and 1998,
                                             4 of the 17 agencies increased the number of reported areas of
                                             noncompliance with FFMIA requirements—systems requirements,
                                             accounting standards, and the SGL. One of the four—the General Services
                                             Administration—whose systems were reported to be in compliance in
                                             fiscal year 1997, was found to be noncompliant in fiscal year 1998 due to
                                             auditors’ interpretations of what constitutes substantial compliance with
                                             FFMIA’s systems requirements. The primary factor contributing to the
                                             additional areas of noncompliance for the other three agencies was
                                             difficulty implementing the new accounting standards. Table 5 compares
                                             the fiscal years 1997 and 1998 audit results for the four agencies whose
                                             areas of reported noncompliance increased.




                                             Page 14                                      GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
                                          B-283317




Table 5: Comparison of Fiscal Years 1997 and 1998 Audit Results for Selected Agencies

                                                              Auditor’s
                                                           determination of
                                                             substantial
                                                             compliance       Areas of reported substantial noncompliance
                                                                              Systems        Accounting
Agency                                     Fiscal year     Yes    No          requirements   standards       SGL
Department of Health and Human Services    1997                   X           X
                                           1998                   X           X              X
Department of Veterans Affairs             1997                   X           X
                                           1998                   X           X              X               X
General Services Administration            1997            X
                                           1998                   X           X
Nuclear Regulatory Commission              1997                   X           X
                                           1998                   X           X              X               X




Reasons for Auditors’                     For fiscal year 1998, the primary reasons for agencies’ financial systems
Determination of                          lack of substantial compliance with the three requirements of FFMIA
                                          remain the same as in fiscal year 1997. Discussed in detail in the respective
Substantial Noncompliance
                                          audit reports on the agency financial statements, reasons for lack of
                                          substantial compliance with the three requirements of FFMIA include the
                                          following:

                                          For federal financial management systems requirements:

                                          • Systems were not integrated.
                                          • Systems data were not updated or reconciled in a timely manner.
                                          • There were ineffective controls over automated information systems.

                                          To prepare financial statements, agencies that do not have a single,
                                          integrated financial system rely on ad hoc programming and analysis of
                                          data that are not reconciled and often require significant adjustments. The
                                          summarization of this accounting data into financial statement formats is a
                                          time-consuming, manual process. As a result, the risk of material
                                          misstatements increases, and reliable data cannot be produced in a timely
                                          and efficient manner for day-to-day decision-making. Also, when systems
                                          lack appropriate controls, sensitive financial data can be exposed to
                                          inappropriate disclosure, destruction, modification, and fraud. We



                                          Page 15                             GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
B-283317




designated information systems security weaknesses as a governmentwide
high-risk area in both 1997,17 and again in 1999,18 and reported that various
financial transactions are examples of federal operations that are at high
risk of unauthorized access and disclosure.

For federal accounting standards, agencies were unable to

• properly account for and report (1) billions of dollars of property,
  equipment, materials, and supplies and (2) certain stewardship assets
  relating to national defense,
• properly estimate the cost of most major federal credit programs and
  the related loans receivable and loan guarantee liabilities,
• determine the proper amount of various liabilities, including,
  environmental and disposal liabilities and related costs, postretirement
  health benefits for members of the military, accounts payable, and other
  liabilities,
• properly account for basic transactions, especially those between
  government agencies and other entities,
• accurately report major portions of the net cost of government
  operations,
• determine the full extent of improper payments that occur in major
  programs and that are estimated to involve billions of dollars annually,
  and
• ensure that all disbursements are properly recorded.

These problems significantly affect the determination of the full cost of the
government’s current operations, the value of assets, and the extent of its
liabilities. Also, agencies’ inability to properly account for various assets
makes agencies unable to provide assurance that assets are safeguarded
against unauthorized acquisition, use, or disposition and that transactions
are executed in accordance with law.

For the SGL:

• Core system data could not be reconciled to feeder system data.
• Transaction detail supporting account information was nonexistent or
  not readily available.


17
     High-Risk Series: An Overview (GAO/HR-97-1, February 1997).
18
     High-Risk Series: An Update (GAO/HR-99-1, January 1999).




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• System financial data were not consistent with the SGL and its posting
  requirements.

SGL deficiencies contribute to the government’s inability to (1) properly
balance the government’s financial statements and account for billions of
dollars of transactions between governmental entities, (2) properly and
consistently compile the information in the financial statements, and
(3) effectively reconcile the results of operations with budget results. In
addition, the lack of SGL implementation could limit agencies’ ability to
compare and contrast program performance.

As we previously reported, a significant challenge for agencies in
overcoming these problems is addressing the age and poor condition of
many of their critical financial systems. We testified on March 31, 1999,19
about the serious financial management improvement challenges facing the
federal government. The central challenge to producing reliable, useful,
and timely data throughout the year and at year-end is overhauling financial
and related management information systems. Agencies must also address
problems with fundamental recordkeeping, incomplete documentation,
and weak internal controls before their systems can produce reliable,
useful and timely information on an ongoing basis, not just at the end of the
fiscal year.

Agencies reported that they were unable to address the poor condition of
their current financial management systems because resources were
devoted to addressing Year 2000 computer conversion issues. In May 1999,
OMB issued a memorandum stating that agencies should follow a policy
that allows system changes only when absolutely necessary and asked
agencies to establish a process to ensure that the effect on Year 2000
readiness be considered prior to establishing new requirements or changes
to information technology systems.20 In June 1999, we testified21 that at
least six agencies had established, or planned to establish, moratoriums or
restrictions on system changes during parts of 1999 and early 2000.


19
 Auditing the Nation’s Finances: Fiscal Year 1998 Results Highlight Major Issues
Needing Resolution (GAO/T-AIMD-99-131, March 31, 1999).
20
 Minimizing Regulatory and Information Technology Requirements That Could Affect
Progress Fixing the Year 2000 Problem (OMB, M-99-17, May 14, 1999).
21
 Year 2000 Computing Challenge: Estimated Costs, Planned Uses of Emergency Funding,
and Future Implications (GAO/T-AIMD-99-214, June 22, 1999).




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                       B-283317




                       Moreover, we also found that because of the Year 2000 problem, agencies
                       or the Congress had delayed implementation of regulatory requirements
                       and planned information technology initiatives.

                       While Year 2000 preparation has resulted in delaying financial system
                       changes in some agencies, over the long term there should be residual
                       benefits from Year 2000 preparation. As a result of Year 2000 efforts,
                       agencies have been provided an additional incentive to control their
                       information technology environment, and in many instances, agencies have
                       been forced to inventory their information systems, link those systems to
                       agency core business processes, and discard systems of marginal value. By
                       doing this, agencies will be in a better position to improve their financial
                       systems next year.



Agencies Have          As discussed earlier, factors contributing to agencies’ lack of substantial
                       compliance with FFMIA include problems implementing accounting
Difficulty Providing   standards. Auditors for 13 agencies reported that the agencies had
Information in         problems implementing one or more of the new accounting standards that
                       became effective in fiscal year 1998. These standards relate to managerial
Accordance With        cost accounting; property, plant, and equipment; accounting for revenue
Accounting Standards   and other financing sources; and stewardship reporting for government
                       investments that benefit the nation, such as national parks and monuments.
                       Table 6 lists the agencies and standards for which auditors reported
                       problems.



                       Table 6: Agencies’ Whose Auditors Reported Problems Implementing New
                       Accounting Standards in Fiscal Year 1998

                                       SFFAS No. 4,                   SFFAS No. 7,
                                       Managerial                     Accounting for
                                       Cost           SFFAS No. 6,    Revenue and       SFFAS No. 8,
                                       Accounting     Accounting for Other              Supplementary
                                       Concepts and   Property, Plant Financing         Stewardship
                       Agency          Standards      and Equipment Sources             Reporting
                       Department of   X              X                X                X
                       Agriculture
                       Department of   X              X                X
                       Commerce
                       Department of   X              X                X                X
                       Defense
                                                                                              (Continued )




                       Page 18                            GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
B-283317




                  SFFAS No. 4,                        SFFAS No. 7,
                  Managerial                          Accounting for
                  Cost                SFFAS No. 6,    Revenue and             SFFAS No. 8,
                  Accounting          Accounting for Other                    Supplementary
                  Concepts and        Property, Plant Financing               Stewardship
Agency            Standards           and Equipment Sources                   Reporting
Department of                         X                   X
Health and
Human
Services
Department of     X                                       X
Housing and
Urban
Development
Department of                         X
the Interior
Department of     X                   X                   X
Justice
Department of     X                   X                   X
Transportation
Department of     X                   X
the Treasury
Department of     X
Veterans
Affairs
Agency for        X                                       X
International
Development
Nuclear           X                                       X
Regulatory
Commission
Office of                                                 X
Personnel
Managementa
Total (13)        10                  8                   10                  2
                                                               (Continued from Previous Page)
a
 The Office of Personnel Management issued five separate audit opinions for each major component.
The auditors for three components—the Retirement, Health Benefits, and Life Insurance Programs—
reported no problems with the new standards.


Agencies face significant challenges implementing these new standards.
For example, complying with the cost accounting standard was a key
challenge. The standard requires agencies to develop measures of the full
costs of carrying out a mission, producing products, or delivering services
to promote comparison of the costs of various programs and results.
Developing the necessary information, which is needed as well to support




Page 19                                    GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
B-283317




Results Act22 implementation, will be a substantial undertaking; and while
there is a broad recognition of the importance of doing so, for the most
part, agencies have just begun this effort.

Our audit of the financial statements for the U.S. government also showed
that many agencies have difficulty providing information in accordance
with applicable federal accounting standards. We were not able to express
an opinion on the U.S. government’s fiscal year 1998 financial statements
because serious deficiencies prevented us and the government from having
assurance that it had properly reported large portions of its assets,
liabilities, and costs. These deficiencies affect the reliability of the financial
statements and much of the underlying information. They also affect the
government’s ability to accurately measure the full cost of programs, and
effectively and efficiently manage its operations.

Appendix I summarizes the fiscal year 1998 audit opinions for the 20 CFO
agencies that had issued audited financial statements as of September 14,
1999. As shown in appendix I, nine agencies received an unqualified
opinion. Nine other agencies received either qualified opinions or
disclaimers of opinion. One agency, which received more than one audit
opinion, received unqualified opinions on financial statements covering a
portion of its operations and disclaimers of opinion on statements for the
remaining segments of its operations. One agency received an unqualified
opinion on its balance sheet and disclaimers of opinion on its other
statements.

Although some agencies have obtained, and others are striving to obtain, an
unqualified (“clean”) audit opinion on their financial statements, such an
opinion is not an end in and of itself. Without fundamental improvements in
internal controls and underlying financial and management information
systems, agency efforts to obtain reliable data needed for day-to-day
management and year-end reporting will meet with limited success. As a
result of poor internal controls and systems, several agencies were unable
to prepare financial statements and have them audited by the March 1
statutory deadline. Ten agencies did not issue their fiscal year 1998 audited
financial statements by March 1, 1999, and some agencies that did meet the
deadline were able to do so only after significantly adjusting account
balances. These adjustments were needed because financial statement


22
 The Government Performance and Results Act of 1993 is commonly known as the Results
Act.




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B-283317




preparation requires considerable reliance on ad hoc programming and
analysis of data produced by inadequate systems that are not integrated or
reconciled. Appendix I shows the dates when agencies issued their fiscal
year 1998 audited financial statements.

The quality of financial management in the federal government has suffered
for decades and has not kept up with private sector and state and local
government finance organizations. To help promote improved federal
financial management and bring it up to par with the private and public
sectors, we recently issued an exposure draft of an executive guide23 to
help federal agencies in achieving the objectives of the CFO Act, FFMIA,
and other related legislation. The guide provides case study examples of
11 fundamental practices of leading private and public sector finance
organizations, including developing systems that support the partnership
between finance and operations, and translating financial data into
meaningful information. These and other practices implemented by the
organizations are critical for establishing and maintaining sound financial
operations that, not only will achieve the goal of an unqualified audit
opinion, but, more importantly, focus on supporting the agency’s overall
performance and ensure that decisionmakers have reliable, useful, and
timely information.

Agencies recognize the extent and severity of their financial management
deficiencies, and the President has designated financial management
reform as a top management priority. In May 1998, the President required
heads of agencies with financial management deficiencies that resulted in
qualified opinions or disclaimers of opinion to submit corrective action
plans to OMB. These corrective action plans are separate from the
remediation plans required by FFMIA. Although the corrective actions may
resolve financial statement reporting deficiencies and result in unqualified
opinions, they may not necessarily resolve identified instances of
noncompliance with FFMIA’s requirements.

We are continuing to work with OMB, the Treasury, and other federal
agencies to recommend the actions necessary to achieve the goal of having
reliable, useful, and timely financial management information on an
ongoing basis consistent with federal accounting standards. With
concerted effort, the federal government can make progress toward


23
 Executive Guide: Creating Value Through World-Class Financial Management
(GAO/AIMD-99-45, August 1999, exposure draft).




Page 21                             GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
                        B-283317




                        achieving accountability and regularly generating reliable financial and
                        management information.



Whether Remediation     If an agency head determines that the agency’s systems are not in
                        substantial compliance, FFMIA requires that the agency head, in
Plans Will Adequately   consultation with the Director of OMB, establish a remediation plan to
Address                 bring the systems into substantial compliance with FFMIA’s requirements.
                        According to OMB guidance, agencies are to prepare remediation plans
Noncompliance Issues    that specify corrective actions and intermediate target dates and resources
Is Questionable         necessary to implement those actions, and include their remediation plans
                        in their annual agency financial management status report and 5-year plan
                        submitted to OMB in September. Remediation plans addressing issues
                        identified in fiscal year 1997 audit reports were due in September 1998.
                        Remediation plans addressing issues identified in fiscal year 1998 audit
                        reports were due to OMB by September 14, 1999.

                        Based on our review of remediation plans for fiscal year 1997, it is
                        questionable, for at least 12 plans, whether the corrective actions, if
                        successfully implemented, would bring the agencies’ systems into
                        compliance with FFMIA. Of the 20 agencies whose systems were reported
                        to be noncompliant with FFMIA in fiscal year 1997, 18 prepared
                        remediation plans to address FFMIA noncompliance issues identified in
                        fiscal year 1997 audit reports. Of the 18 agencies, the Department of
                        Education did not originally prepare a remediation plan in accordance with
                        OMB guidance. Based on our inquiry, OMB requested the Department of
                        Education to prepare and submit a remediation plan. In response, the
                        Department of Education prepared a remediation plan and submitted it to
                        OMB on July 15, 1999.

                        Of the 20 agencies whose systems were reported to be noncompliant with
                        FFMIA in fiscal year 1997, two agencies—the Department of State and the
                        Social Security Administration (SSA)—did not submit remediation plans to
                        OMB. The Department of State has since contracted for the preparation of
                        a remediation plan to address problems with its financial management
                        systems identified in fiscal year 1997. SSA did not submit a remediation
                        plan to OMB because management determined that its systems were in
                        substantial compliance with FFMIA. However, SSA provided comments,
                        including corrective actions, in response to the auditor’s recommendations.

                        Based on our review of the 18 available remediation plans for fiscal year
                        1997, it is uncertain whether some of the corrective actions in at least five



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B-283317




of the plans will resolve the problems that caused the agencies’ systems to
lack substantial compliance with FFMIA. Seven plans did not contain key
information to adequately assess the plans. Specifically, three plans did not
include information on the resources needed to implement the corrective
actions, and the other four plans did not contain corrective actions for all
instances of noncompliance, nor did they contain sufficient information on
resources or target dates. Without this key information, it is difficult, if not
impossible, to determine whether the corrective actions are realistic and if
the target dates are reasonable. For example, in January 1999, we
reported24 that the Department of Defense’s (DOD) biennial plan25 did not
include actions to adequately ensure the integrity of the key data in the
agency’s feeder systems, which provide about 80 percent of the information
needed for financial reporting.26 These systems are also critical operational
systems. For the six remaining plans, we determined that, if successfully
implemented, the corrective actions may resolve the agencies’ problems.
However, it is too early to tell if these agencies will be successful in
implementing these plans. Table 7 lists, by remediation plan assessment,
the 18 agencies.



Table 7: Assessment of Agencies’ Remediation Plans

                                                                Remediation plan did not
                                                                contain sufficient key
Remediation plan, if             Uncertain whether              information on corrective
implemented, may                 remediation plan will          actions, resources and/or
resolve problems                 resolve problems               target dates
Department of Agriculture        Department of Health and       Department of Commerce
                                 Human Services
Department of Education          Department of the Interior     Department of Defense
Department of                    Department of the Treasury     Department of Housing and
Transportation                                                  Urban Development
                                                                                  (Continued )




24
 Financial Management: Analysis of DOD’s First Biennial Financial Management
Improvement Plan (GAO/AIMD-99-44, January 29, 1999).
25
 DOD’s Biennial Plan includes its remediation plan as well as information to satisfy other
regulatory reporting requirements under the CFO Act and the Federal Managers’ Financial
Integrity Act of 1982.
26
     In April 1999, DOD’s OIG also issued a report describing weaknesses in the Biennial Plan.




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                                                             Remediation plan did not
                                                             contain sufficient key
Remediation plan, if          Uncertain whether              information on corrective
implemented, may              remediation plan will          actions, resources and/or
resolve problems              resolve problems               target dates
Environmental Protection      Department of Veterans         Department of Justice
Agency                        Affairs
Nuclear Regulatory            Agency for International       Department of Labor
Commission                    Development
Small Business                                               Office of Personnel
Administration                                               Management
                                                             Federal Emergency
                                                             Management Agency
Total            6            5                              7
                                                           (Continued from Previous Page)

Based on our review of agency audit reports and remediation plans, we
found that seven agencies’ corrective actions included developing new core
financial management systems to replace noncompliant systems. The
federal government is increasingly dependent on information technology to
improve its performance and meet mission goals, and as a result, spends
billions of dollars each year on information technology. All too often,
information technology projects have resulted in huge cost overruns and
limited improvement in performance. To ensure that information
technology dollars are directed toward prudent investments designed to
achieve cost savings, increase productivity, and improve the timeliness and
quality of service delivery, agencies need to successfully incorporate
modern information technology practices and meet the OMB and Clinger-
Cohen Act requirements for new system developments.27

Recent GAO and other reviews show that numerous agencies continue to
experience weaknesses with information technology investment selection
and control processes. For example, a corrective action cited by the
Agency for International Development (AID) is to implement a new core
financial management system. On March 1, 1999, AID’s OIG reported that
the agency is at risk of repeating past mistakes that led to the deployment
of a system in 1996 that did not operate effectively. Some of these past
mistakes included (1) lack of an agencywide blueprint before beginning


27
  The Clinger-Cohen Act of 1996 builds on the best practices of leading public and private
organizations by requiring agencies to better link information technology planning and
investment decisions to program missions and goals.




Page 24                                 GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
             B-283317




             development, (2) a preliminary systems architecture that only covered the
             core financial system and did not address other financial management
             systems, and (3) lack of an integrated strategy supported by an investment
             analysis and detailed plans.

             Agency remediation plans are a crucial tool for agency managers. Details in
             the plans could help agencies focus on specific problems and the actions
             and resources needed to correct those problems. We testified on June 18,
             1998,28 that congressional committees, as part of annual appropriation or
             oversight hearings, could use the agencies’ remediation plans, along with
             financial statement audits and reports on compliance with FFMIA, to
             measure the progress agencies are making toward improving financial
             management. We also discussed the need for the remediation plans to be
             sufficiently detailed to provide a “road map” for agency management and
             staff to resolve financial management problems. The severity of problems
             facing agencies as they attempt to implement current and future
             accounting standards, resolve serious information security weaknesses,
             and replace or overhaul old and outdated financial systems highlights the
             need for detailed remediation plans.

             As part of our effort to help improve financial management throughout the
             government, we will review remediation plans due to OMB in September
             1999 on issues identified in fiscal year 1998 audits. We will determine if the
             plans have improved over the ones we reviewed for this report and make
             any needed recommendations.



Conclusion   Long-standing problems with agencies’ financial management systems
             decrease the government’s ability to produce reliable, useful, and timely
             financial information. This information is important for formulating
             budgets, managing government programs, and making difficult policy
             choices. In addition, complying with FFMIA is essential for departments
             and agencies to maximize their performance and ensure their
             accountability. The federal government’s size and complexity and the
             discipline needed to overhaul or replace its financial management systems
             present a significant challenge. Also, agencies will continually face
             challenges in implementing new accounting standards as FASAB continues


             28
              Financial Management: Fostering the Effective Implementation of Legislative Goals
             (GAO/T-AIMD-98-215, June 1998).




             Page 25                              GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
                  B-283317




                  to deliberate on new and emerging accounting issues that will result in the
                  issuance of additional standards.

                  We recognize that it will take time, investment, and sustained emphasis on
                  correcting deficiencies to improve federal financial management systems
                  to the level required by FFMIA and necessary to effectively manage
                  government funds. The significance of issues facing agencies, now and in
                  the future, emphasizes the need for detailed remediation plans that clearly
                  describe the corrective actions necessary to resolve problems, as well as
                  information about the resources and time frames required to successfully
                  implement the corrective actions. As envisioned by the act, these
                  remediation plans would help agencies establish seamless systems and
                  processes to routinely generate reliable, useful, and timely information
                  which would improve agencies’ accountability and help them to meet the
                  statutory deadline for issuing audited financial statements. However, based
                  on our review, some remediation plans were submitted late, were not
                  completed, or did not always contain sufficient information about agencies’
                  plans to address their problems. The consultative role the act established
                  for the Director of OMB, with respect to the agency remediation plans, is
                  important to addressing the types of problems we noted in the current
                  remediation plans and to improve the development of future plans.



Recommendations   We recommend that the Director of the Office of Management and Budget
                  require the Deputy Director for Management, as part of the consultative
                  process for future remediation plans, to work with the agencies to ensure
                  that all remediation plans are prepared and submitted timely and to review
                  the plans for (1) detailed corrective actions that fully address reported
                  problems, (2) inclusion of resource requirements, and (3) specific time
                  frames needed to implement and resolve problems. We also recommend
                  that the Director of the Office of Management and Budget require the
                  Deputy Director for Management to work with the agencies to ensure that
                  the agencies’ financial statements are audited and issued by the March 1
                  statutory deadline.



Agency Comments   In comments on a draft of this report, OMB generally agreed that our report
                  fairly presented the status of the federal government’s implementation of
                  FFMIA and concurred with our recommendations. FMS also concurred
                  with the report’s contents.




                  Page 26                          GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
B-283317




We are sending copies of this report to Senator George V. Voinovich,
Chairman, and Senator Richard J. Durbin, Ranking Minority Member,
Subcommittee on Oversight of Government Management, Restructuring,
and the District of Columbia, Senate Committee on Governmental Affairs;
Representative Stephen Horn, Chairman, and Representative Jim Turner,
Ranking Minority Member, Subcommittee on Government Management,
Information, and Technology, House Committee on Government Reform.
We are also sending copies to the Honorable Jacob J. Lew, Director of the
Office of Management and Budget; the Honorable Lawrence H. Summers,
Secretary of the Treasury; the heads of the 24 CFO agencies; and agency
CFOs and Inspectors General. Copies will also be made available to others
upon request.

This report was prepared under the direction of Gloria L. Jarmon, Director,
Health and Human Services Accounting and Financial Management, who
may be reached at (202) 512-4476 or by e-mail at jarmong.aimd@gao.gov if
you have any questions. Key contributors to this assignment were Deborah
A. Taylor, Diane N. Morris, and Sandra S. Silzer.




David M. Walker
Comptroller General
of the United States




Page 27                          GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
Appendix I

CFO Agencies’ Fiscal Year 1998 Audit                                                                                              Appendx
                                                                                                                                        ies




Opinions and Target Dates                                                                                                          Appendx
                                                                                                                                         Ii




                                          The 1990 CFO Act was the cornerstone of the legislative foundation for the
                                          federal government to provide taxpayers, the nation’s leaders, and agency
                                          program managers with reliable financial information through audited
                                          financial statements. Under the CFO Act, as expanded by the Government
                                          Management Reform Act of 1994, the 24 major agencies are required to
                                          annually prepare organizationwide financial statements, beginning with
                                          those for fiscal year 1996, and have them audited. Table 8 lists the 24 CFO
                                          agencies, the audit opinion received for fiscal year 1998, the date the fiscal
                                          year 1998 audit report was issued, and when the agency expects to receive
                                          an unqualified opinion on its financial statements, as reported in OMB’s
                                          Federal Financial Management Status Report & Five-Year Plan issued in
                                          1999.



Table 8: Opinions for the 24 CFO Agencies’ Fiscal Year 1998 Financial Statements, Date Audit Report Issued, and When
Unqualified Opinions Are Expected

                                                                                                               Expected date
                                                                                                               for obtaining an
                                                                                                               unqualified
                                                                               Date fiscal year 1998 audit     opinion (fiscal
Agency                                  Fiscal year 1998 audit opinion         report issued                   year)
Department of Agriculture               Disclaimer                             February 22, 1999               2000
Department of Commerce                  Unqualified on balance sheet only;     May 4, 1999                     1999
                                        disclaimer on statements of net cost
                                        and changes in net position and
                                        combined statement of budgetary
                                        resources and financing
Department of Defense                   Disclaimer                             March 1, 1999                   After 2000
Department of Educationa                Unqualified in fiscal year 1997        N/A                             N/A
Department of Energy                    Qualified                              February 25, 1999               1999
Department of Health and Human Services Qualified                              February 26, 1999               1999
Department of Housing and Urban         Unqualified                            March 29, 1999                  N/A
Development
Department of the Interior              Unqualified                            April 19, 1999                  N/A
Department of Justice                   Disclaimer                             February 15, 1999               1999
Department of Labor                     Unqualified                            February 26, 1999               N/A
Department of Statea                    Unqualified in fiscal year 1997        N/A                             N/A
Department of Transportation            Disclaimer                             March 30, 1999                  1999
Department of the Treasury              Qualified                              March 25, 1999                  1999
Department of Veterans Affairs          Qualified                              March 10, 1999                  1999
Agency for International Development    Disclaimer                             March 1, 1999                   2000
                                                                                                                      (Continued )



                                          Page 28                                 GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
                                        Appendix I
                                        CFO Agencies’ Fiscal Year 1998 Audit
                                        Opinions and Target Dates




                                                                                                                 Expected date
                                                                                                                 for obtaining an
                                                                                                                 unqualified
                                                                                Date fiscal year 1998 audit      opinion (fiscal
Agency                                Fiscal year 1998 audit opinion            report issued                    year)
Environmental Protection Agencya      Unqualified in fiscal year 1997           N/A                              N/A
Federal Emergency Management Agency   Unqualified                               March 1, 1999                    N/A
General Services Administration       Unqualified                               February 25, 1999                N/A
National Aeronautics and Space        Unqualified                               February 18, 1999                N/A
Administration
National Science Foundation           Unqualified                               February 26, 1999                N/A
Nuclear Regulatory Commission         Unqualified                               March 1, 1999                    N/A
Office of Personnel Management                                                                                   1999
Retirement Program                    Unqualified                               February 23, 1999
Health Benefits Insurance Program     Unqualified                               February 23, 1999
Life Insurance Program                Unqualified                               February 23, 1999
Revolving Fund                        Disclaimer                                March 1, 1999
Salaries and Expenses                 Disclaimer                                March 1, 1999
Small Business Administrationa        Unqualified in fiscal year 1997           N/A                              N/A
Social Security Administration        Unqualified                               November 20, 1998                N/A
                                                                                                     (Continued from Previous Page)
                                        a
                                         Audit report not available as of September 14, 1999.




(916272)                 Leter          Page 29                                     GAO/AIMD-00-3 FFMIA Results for Fiscal Year 1998
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