Financial Management: Australia's Finance Information on Resource Management (FIRM) System and Lessons Learned

Published by the Government Accountability Office on 1997-10-14.

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

      United States
      General Accounting  Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division

                                                             I 9’-          ?/
      October 14, 1997

      The Honorable Ted Stevens
      Committee on Appropriations
      United States Senate

      Subject:    Financial Management: Australia’s Finance Information on Resource
                  Management (FIRMS Svstem and Lessons Learned

      Dear Mr. Chairman:

      This report responds to your request, made in your former capacity as
      Chairman, Senate Committee on Governmental Affairs, that we obtain and
      analyze information on Australia’s governmentwide financial management
      system, the Finance Information on Resource Management (FIRM) system.
      Based on discussions with your staff, this report (1) summarizes the history of
      FIRM’s development and implementation, (2) identifies the risks Australia
      encountered in developing a centralized system and the actions it took to
      mitigate those risks, and (3) surfaces key lessons learned from Australia’s
      experience. The following discussion provides background on the FIRM system
      and answers your specific questions.


      FIRM, Australia’s current centralized financial system, tracks cash- and budget-
      related activity for the whole government. It integrates budget and actual data,
      provides funds control on a near real-time basis, and assists in developing and
      monitoring budget estimates. FIRM consists of two fully integrated
      subsystems-Financial Exchange and Resource Management. The Financial
      Exchange subsystem is the core accounting system that processes all agencies’
      payment and receipt transactions and records them against Australia’s primary
      bank account, the Commonwealth Public Account. Agencies operate their own
      comprehensive financial management information systems (FMIS) to fulfill
      individual accounting needs. Each agency’s FMIS interfaces with FIRM to
      submit payment and receipt data using a standard format file. FIRM produces
      the Financial Exchange Confirmation file, which agencies use to confirm their

                                           GAO/AlMD-9%2R Australia’s FIRM System

                                        /59 as/

  payment and receipt amounts. The Financial Exchange subsystem also
  interacts with the Resource Management subsystem, which provides the funds
  control function of FIRM. Expenditures are controlled at the appropriation
  level, and F’IRM suspends payments if an agency has insufficient appropriated

  In addition to facilitating the exchange of money, agencies’FMIS systems
  interface with FIRM to provide further information about resource use. This
  additional information is contained in the Resource Variance Advice file and the
  associated Resource Variance Reference files. Data contained in these files
  allow users to array payment information by various categories, such as
  program, activity, department, number of people, and square footage of space
  occupied. This information is aggregated and recorded in the second
  subsystem, Resource Management.

  The Resource Management subsystem is the core budget system that fully
  integrates actual and budget data and tracks variances. It receives actual
  expenditure information from the Financial Exchange subsystem, which can be
. compared to budgeted data. Department of Finance budget officers input
  budget estimates as part of the budget process. Although the Resource
  Management subsystem records information only at the highest level needed by
  Department of Finance resource managers, it also gives agencies ,posting
  information on all resource variations it has processed, including variations
  processed by third parties on behalf of agencies. Agencies receive the detailed
  information from the Resource Variance Confirmation file, which is produced by
  the Resource Management subsystem.

  mM uses the same charts of accounts for budget estimates and actual data,
  thus allowing the data to be reported by appropriation, functional class,
  economic type, or portfolio (agency) “views.” Changes in resource levels are
  recorded in FIRM and linked to a multiple “resource view/chart of accounts”
  that reflects a breakdown of aggregate government activity. The “views” allow
  reporting of resource use (1) against the annual appropriation acts, which can
  be used to ensure funds availability (appropriation view), (2) by government
  objective, such as health, education, and defense (functional view), (3)
  according to economic nature and impact, such as clean air and safe food
  supply (economic type), and (4) by agency (portfolio view). This structure links
  budget data directly with the related expenditure information in one system.
  F’IRM is also reportedly able to produce a statement of financial transactions for
  the whole Australian government within hours of fiscal year-end or at any given
  point throughout the year.

   However, FIRM does not capture the full cost of government. First, it provides
   only a cash-based picture on a real-time basis and, thus, does not track accruals

   2                                    GAO/AIMD-9&ZR Australia’s FIRM System

or account for assets other than cash. For example, FIRM does not contain
information about the cost of goods or services received but not yet paid for,
nor does it contain details about the value of certain assets, such as physical
property. As a result, FIRM cannot currently produce Australia’s consolidated
financial statements.’

Second, FIRM does not tra.&k off-budget entities not funded by the
Commonwealth Public Account, such as Telstra, the country’s major
communications company. Third, according to Department of Finance officials,
FIRM does not yet strongly link the measurement of program outcomes with
the budget. Doing so could provide information about what the government’s
programs achieved and how much they cost.

After the conclusion of our fieldwork, Australian officials stated #at in 1997,
the Australian government accepted the recommendations of the
Commonwealth Budgeting, Reporting and Accounting (COBRA) Scoping Study
to introduce a resource management framework using outcome- and output-
based accrual budgets and estimates with accrual appropriations. This
framework is scheduled for implementation, using commercial accrual
accounting software to replace FIRM Resource Management, in time to prepare
the first accrual budget for FY 1999/2000.2 This change is expected to enable
Australia to move closer to fuh accrual accounting and reporting.

The following sections respond to your specific questions.



What was the impetus that resulted in Australia having a centralized financial
management system and how long has Australia had such a system?

GAO Resnonse

The Australian public sector has emphasized centralized funds control and fiscal
accountability from its constitutional beginnings. The regulatory framework for

!The Minister of Finance prepares the annual June 30 fiscal year-end financial
statements for Australia, which are audited by the Australian Auditor General.

2The primary budget statements to be presented to Parliament include agency
and consolidated budgeted operating statements, budgeted statements of assets
and liabilities, and budgeted statements of cash flows and capital budgets.

3                                     GAO/AIMD-9&2R Australia’s FIRM System
the financial management of the federal government is based on the Australian
constitution and the Audit Act of 1901.3 These provide that moneys may not be
disbursed unless the Minister for Finance has signed an authorization
confirming that funds are available to be drawn from the Commonwealth Public
Account. In 1990, the Secretary of the Department of F’inance made the final
decision to develop FIRM from Australia’s original centralized accounting
system. Initially, a series of legislative reforms in the mid-1980s led to the
original conceptual decision to develop F’IRM as an integrated system.

In the 1960s Australia implemented its original automated centralized
accounting system-the Finance Ledger System-and a separate budget system-
the Budget Management System. The Finance Ledger System recorded all
payment and receipt transactions, and the Budget Management System tracked
budget estimates and outcomes at a summary level. Aggregate payment and
receipt data were uploaded to the Budget Management System from the E5nance
Ledger System on a monthly basis.

In the 198Os,a series of broad financial management and budgetary reforms
were instituted, in part because of economic difficulties and a desire to restrain
public sector spending and better align it with Australia’s overall
macroeconomic policy framework. The government party elected in 1983
issued a reform package to promote efficient and effective resource
management in federal government administration. This encouraged the
replacement of the Finance Ledger System and the Budget Management System
with F’IRM to give department program managers more detailed and flexible
reporting and to encourage the linking of use and performance. The reform
package called for budgetary changes, such as instituting a running costs*
concept, so that the full cash-based costs of an agency could be aggregated in a
single appropriation. System designers thought it important that FIRM be
linked to the budget in part by requiring that FIRM track an agency’s running
 costs. Consequently, agencies must have individual ledger systems to account
 for their funds and detailed transactions by the various types of administrative

 ?he government has introduced a package of three bills to replace the Audit
 Act of 1901. The new bills, which are scheduled to take effect on July 1, 1997,
 are intended to provide additional financial management reforms.

 *Running costs include salaries, travel, and other administrative expenses, but
 they exclude transfer payments, grants, or loans and allow up to 2 percent of
 unused administrative funds to be carried over to the following year’s

 4                                     GAO/AIMD-98-2R Australia’s F’IRM System


Did Australia’s government agencies resist the move to the centralized financial
management system?

GAO Resnonse

According to officials in the Department of Finance, Australia has had a
centralized payment process since 1901, and it instituted an automated
centralized financial management system in the 1960s. Although agencies did
not resist FIRM or the need for a centralized system, FIRM designers were
concerned that users might resist using a new system since they were familiar
with a system that had been in place for more than 20 years. FIRM designers
ensured that users had adequate input into the system’s design throughout the
development process. As a result, implementing FIRM required no change in
the government’s fundamental philosophy of centralized funds control.


Question .

How long did it take to develop Australia’s current centralized system? What
were the development costs?

GAO Resnonse

It took approximately 5 years to complete the development of alI phases of
FIRM. However, before the Department of Finance began developing FIRM, it
surveyed users to determine the type of information that should be maintained
and how the information would likely be used. For example, designers
interviewed potential users to understand the level of governmentwide
information that needed to be maintained.

These informational needs were critical to decisions about FIRM’s architectural
structure. Because of its complex design, size, and many discrete user groups,
FIRM was developed in three stages: (1) the Financial Exchange subsystem’s
payments and receipts functions were implemented in August 1992, (2) the
Resource Management subsystem’s core and “actuals” functions were
implemented in July 1995, and (3) Resource Management’s “estimates” function
was implemented in January 1996.

5                                    GAO/AIMD-98-2R Australia’s FIRM System

The Department of Finance estimated the cost to develop FIRM at $6 million.5
According to Department of Finance officials, this in-house development cost is
comparable to what it would have cost to modify a commercial product.



What key .practices from Australia’s experience could provide a useful
framework for the United States if the federal government were to adopt a
similar centralized financial management system? Also, identify the risks
encountered by Australia in pursuing a centralized system and the actions taken
to mitigate those risks.

GAO Resuonse

Based on our review of FIRM, we identified the three practices discussed below
that should be considered in any attempt to modify financial management
systems. These are consistent with the best practices of leading organizations’
strategic information management and technology reported by GAO.‘j

Practice   1: High-level support for good financial management is essential
              for the success of a centralized financial management
              information system.

FIRM had high-level support in the Department of Finance, the Cabinet of
Ministers, and the Parliament. The two deputies of Australia’s Secretary of
Finance are the “owners” of the system: thereby ensuring high-level interest in
FIRM’s success. Also, financial management reforms have been successful due
to strong support from various elected parties and their ministers, which have
been supportive regardless of the party in power. This high-level support helps
ensure buy-in by the agencies and other affected parties.

?I’he estimate is shown in U.S. dollars.
‘Executive Guide: Improving Mission Performance Through Strategic
Information Management and Technologv. Learning Prom Leading Organizations
(GAO/AIMD-94115, May 1994).
7As owners of the system, these individuals’ primary responsibilities are to
oversee FIRM development, ensure that FIRM is maintained and updated, and
provide users with proper training and input into system changes.

 6                                     GAO/AIMD-98-2R Australia’s FIRM System

Practice   2: System flexibility is essential to meet individual      information
              needs and requirements.

FIRM has been designed to provide the flexibility needed to adapt to changing
business requirements for resource management. Whenever possible, system
parameters were implemented by data-driven tables, which increases the
system’s flexibility. For example, FIRM is able to accommodate resource
variations in any specified currency and adjust prices to facilitate budget
analysis for future years. Also, FIRM’s forward estimates system, which is part
of the Resource Management subsystem, allows the government the flexibility
to estimate the level of budget outlays for 3 years. These estimates record the
expected levels of expenditure the government proposes for future years based
on (1) relevant economic, demographic, and other forecasting assumptions and
(2) the minimum cost of continuing all existing policies and programs. The
system allows decisionmakers to create various scenarios by adjusting any of
the elements for the impact of policy changes on present and future budgets.
FIRM also gives managers the flexibility to create reports that meet their
specific management needs.

Practice   3: The centralized system should provide     operational     efficiencies
              and economies of scale.

According to Department of Finance officials, FIRM system users benefit from
the following operational efficiencies and economies of scale.

l   Essentially all government payments are managed by one payment system.

l   FIRM interfaces with approximately 80 stand-alone, fully integrated
    departmental systems.8 Australia’s individual agencies operate their own
    comprehensive financial management information systems to meet their
    more detailed individual accounting needs. According to system designers
    in the Department of Finance, FIRM can be linked with these systems by
    either mainframe-to-mainframe or dial-up links. System users interface with
    FIRM in a variety of ways, including through graphical user interfaces that
    allow users to link individual separate analytical spreadsheets and FIRM
    tables, thereby eliminating the need for users to rekey information. Also,
    system users can download data from the mainframe into end-user tools to
    update data and send them back to the mainframe.

‘Since many agencies use the same departmental systems-referred to as the
Financial Management Information Systems @US)-FIRM actually interfaces
with only 30 different systems.

7                                       GAO/AND-9&2R       Australia’s FIRM System

.       FIRM’s standard charts of accounts for budget and actual data are
        complementary and data can be reported by appropriation, functional class,
        economic type, or portfolio.

l       FIRM records aggregate resource use rather than duplicating the detailed
        information maintained at the agency level. Efficiencies can be achieved by
        aggregating payment information at the payee level and issuing one check to
        vendors. FIRM’s conf%mation output files are the only source of
        transactional information. These confirmation output files allow agencies to
        verify that payments have been made as requested.

In addition to identifying key practices from Australia’s experience, we
identified various risks the Australian system developers recognized and actions
designed to reduce such risks. Table 1 lists the risks and the actions designed
to address them.

    8                                      GAO/ATMD-98-2R Australia’s FIRM System
Table I:      Risks Faced bv FIRM Svstem Develoners and Mitigating Actions

    Risk                                     Action   designed   to reduce risk
    Users might resist using FIRM if         Australia (1) undertook extensive user
    it did not meet their unique             consultation before and during design
    needs.                                   and development to be flexible and
                                             user responsive, (2) developed a trial
                                             prototype and emphasized user
                                             involvement, (3) developed a “usability
                                             laboratory” for users to review
                                             prototypes, and (4) surveyed users and
                                             modified the prototype based on user
    Users might not be willing to            Australia (1) emphasized user
    commit necessary resources.              involvement at every stage of
                                             development, (2) made the highest
                                             levels of management responsible for
                                             the system (for instance, system
                                             ownership resides within the
                                             Department of Finance at the Deputy
                                             Secretary level), and (3) organized user
                                             forums to obtain user input and
                                             validate work done by the project
    Users might resist using FIRM or         Australia provided training uniquely
    not use it to its fullest capabilities   designed to meet the needs of each
    if they did not know how to use          group.
    it properly.
    Staff involved in the development        Australia provided adequate training to
    of the system might not                  staff involved in the development of
    understand how to use all the            the system to ensure that they
    development techniques and               understood the development
    available tools for new                  environments of new applications.

9                                            GAO/AIMD-982R Australia’s FIRM System

  Risk                                 Action   designed to reduce risk
  Requirements of different            Australia (1) established a formal
  stakeholders might conflict with     mechanism to assist in resolving
  3ne another.                         confIicts in stakeholder requirements,
                                       (2) surveyed stakeholders to
                                       understand their concerns and
                                       requirements, and (3) allowed
                                       stakeholders to determine if proposed
                                       resolutions adequately addressed their
                                       needs by having stakeholders use the
                                       system’s prototype.
  The F’IRM project might be            Australia (1) maintained close contact
  developed without considering         with individuals responsible for the
  the changing legislative              development of new financial
  environment and technology.           legislation, (2) ensured that F’IRM
                                        could be modified for future financial
                                        needs, (3) educated project developers
                                        about new technologies, and
                                        (4) monitored project development to
                                        reduce the risk of delays.
  Verification and approval             Australia delegated the verification and
  procedures might slow the             approval procedures to the systems
  decision-making process.              managers as much as possible.

Australia’s experiences with a centralized financial management system may
provide insights about lessons learned and practices to consider, such as clearly
defined systems requirements, high-level support for systems development, and
system flexibility. However, it is important to note that the differences in the
size and structure of the Australian government and the United States
government should be considered if a similar system were to be developed by
the United States.

 Australia, with a population of 18.4 million people,g had total federal outlays of
 approximately $100 billion for fiscal year 1996 as compared to total outlays for
 the U.S. government of $1.7 trillion dollars. Table 2 compares outlays for the
 five largest Australian departments and the comparable agencies in the United

 ‘As of December 1996.

 10                                     GAOIAIMD-98-2R Australia’s F’IRM System

Table 2:    Outlavs     for Australian and U.S. Governments for Fiscal Year 1996

 dollars in billions)
                      Austmlia                                        United States
 Five largest   agencies            Outlays for     Comparable    agencies              Outlays for
                                     fiscal year                                         fiscal year
                                  ended 6/30/96                                       ended 9/30/96

 Social Security                             $30    Social Security                             $375
                                                        . .
 Treasury                                    $18    Department of the                           $365
 Health and Family                           $16    Department of Health                        $320
 Services                                           and Human Services
 Employment, Education,                      $11    Departments of Labor                         $62
 Training, and Youth                                and Education

 Defense                                      $9    Defense                                     $286

Note: Amounts are shown in U.S. dollars. Australian dollars were converted at the February 26, 1997,.
exchange rate ($1.28 Australian = $1 U.S.).

Austraha’s1onational government’s executive branch is comprised of the Prime
Minister and the Cabinet, or Ministry. The Prime Minister presides over the Cabinet of
Ministers, which is made up of elected Members of Parliament and is the government’s
major policy-making agency. The Ministers oversee the government’s departments.
Because, under Australia’s ‘Parliamentary system, members head the various
departments, Parliament was a stakeholder in the process and it helped in gaining
consensus to develop and implement a centralized system for the government.

“In 1901, Australia’s colonies federated, becoming states within the
Commonwealth of Australia Australia operates a three-tiered system of
government-the federal, state, and local levels. The Australian Parliament and
the national government deal with federal matters. The six state governments
and their legislatures and Australia’s two territories administer education,
transportation, law enforcement, health services, and agriculture. There are
approximately 900 local government bodies with varying levels of responsibility.

11                                          GAO/AI&ID-982R Australia’s FIRM System

To address your questions, we (1) reviewed detailed documentation on the F’IRM
system (2) observed the FIRM system and reviewed reports generated by the system,
and (3) interviewed officials in the Australian government, including the F’IRM system’
designers; persons responsible for maintaining and modifying FIRM, budget officials
responsible for developing and monitoring budget estimates; auditors and system user.
in the Australian National Audit Office; certain front-end users in the Department of
F’inance; other departmental F’IRM system users; and Members of the Australian

We did not verify the Egures cited in this report-such as the costs of Australia’s
financial management systems-that various Australian officials provided to us. In
addition, we did not verify that FIRM functioned as reported.

We conducted our review in accordance with generally accepted government auditing
standards. We requested comments on a draft of this letter from officials in the
Australian government-the National Audit Office and the Department of F’inance-and
their comments have been incorporated where appropriate.

We are sending copies of this report to the Chairmen and Rankirig Minority Members
of the Senate Committee on Governmental Affairs and the House Committee on
Government Reform and Oversight; the Secretary of the Treasury; the Director, Office
of Management and Budget; and other interested parties. We also will make copies
available to others upon request.

If you have any questions about this report, please contact Deborah A. Taylor,
Assistant Director, at (202) 5124476. Other major contributors to this letter were
Margaret A. Sherry and Sabrina L. Springfield, senior audit managers.

Sincerely yours,


 12                                   GAO/AIMD-98-2R Australia’s F’IRM System
Ordering    Information

The first copy of each GAO report and testimony is free.
Additional  copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent    of Documents, when
necessary. VISA and Mastercard     credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a singIe address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting   Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by caBing (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony.   To receive facsimile copies of the daily Iist or any
list from the past 30 days, please cali (202) 512-6000 using a
touchtone phone. A recorded menu w-iii provide information        on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with “info” in the body to:


or visit GAO’s World Wide Web Home Page at:

United States
General Accounting Office
Washington, D.C. 20548-0001

Official   Business
Penalty    for Private   Use $300

Address    Correction    Requested