[Congressional Record Volume 142, Number 117 (Friday, August 2, 1996)]
[Senate]
[Pages S9666-S9668]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996

  Mr. STEVENS. Mr. President, I ask unanimous consent that the Senate 
proceed to the consideration of calendar No. 548, S. 1130.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 1130) to provide for the establishment of 
     uniform accounting systems, standards and reporting systems 
     in the Federal Government, and for other purposes.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill, 
which had been reported from the Committee on Governmental Affairs, 
with an amendment to strike all after the enacting clause and insert in 
lieu thereof the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Federal Financial Management 
     Improvement Act of 1996''.

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--The Congress finds the following:
       (1) Much effort has been devoted to strengthening Federal 
     internal accounting controls in the past. Although progress 
     has been made in recent years, Federal accounting standards 
     have not been uniformly implemented in financial management 
     systems for agencies.
       (2) Federal financial management continues to be seriously 
     deficient, and Federal financial management and fiscal 
     practices have failed to--
       (A) identify costs fully;
       (B) reflect the total liabilities of congressional actions; 
     and
       (C) accurately report the financial condition of the 
     Federal Government.
       (3) Current Federal accounting practices do not accurately 
     report financial results of the Federal Government or the 
     full costs of programs and activities. The continued use of 
     these practices undermines the Government's ability to 
     provide credible and reliable financial data and encourages 
     already widespread Government waste, and will not assist in 
     achieving a balanced budget.
       (4) Waste and inefficiency in the Federal Government 
     undermine the confidence of the American people in the 
     Government and reduce the Federal Government's ability to 
     address vital public needs adequately.
       (5) To rebuild the accountability and credibility of the 
     Federal Government, and restore public confidence in the 
     Federal Government, agencies must incorporate accounting 
     standards and reporting objectives established for the 
     Federal Government into their financial management systems so 
     that all the assets and liabilities, revenues, and 
     expenditures or expenses, and the full costs of programs and 
     activities of the Federal Government can be consistently and 
     accurately recorded, monitored, and uniformly reported 
     throughout the Federal Government.
       (6) Since its establishment in October 1990, the Federal 
     Accounting Standards Advisory Board (hereinafter referred to 
     as the ``FASAB'') has made substantial progress toward 
     developing and recommending a comprehensive set of accounting 
     concepts and standards for the Federal Government. When the 
     accounting concepts and standards developed by FASAB are 
     incorporated into Federal financial management systems, 
     agencies will be able to provide cost and financial 
     information that will assist the Congress and financial 
     managers to evaluate the cost and performance of Federal 
     programs and activities, and will therefore provide important 
     information that has been lacking, but is needed for improved 
     decisionmaking by financial managers and the Congress.
       (7) The development of financial management systems with 
     the capacity to support these standards and concepts will, 
     over the long term, improve Federal financial management.
       (b) Purposes.--The purposes of this Act are to--
       (1) provide for consistency of accounting by an agency from 
     one fiscal year to the next, and uniform accounting standards 
     throughout the Federal Government;
       (2) require Federal financial management systems to support 
     full disclosure of Federal financial data, including the full 
     costs of Federal programs and activities, to the citizens, 
     the Congress, the President, and agency management, so that 
     programs and activities can be considered based on their full 
     costs and merits;
       (3) increase the accountability and credibility of Federal 
     financial management;
       (4) improve performance, productivity and efficiency of 
     Federal Government financial management;
       (5) establish financial management systems to support 
     controlling the cost of Federal Government;
       (6) build upon and complement the Chief Financial Officers 
     Act of 1990 (Public Law 101-576; 104 Stat. 2838), the 
     Government Performance and Results Act of 1993 (Public Law 
     103-62; 107 Stat. 285), and the Government Management Reform 
     Act of 1994 (Public Law 103-356; 108 Stat. 3410); and
       (7) increase the capability of agencies to monitor 
     execution of the budget by more readily permitting reports 
     that compare spending of resources to results of activities.

     SEC. 3. IMPLEMENTATION OF FEDERAL FINANCIAL MANAGEMENT 
                   IMPROVEMENTS.

       (a) In General.--Each agency shall implement and maintain 
     financial management systems that comply with Federal 
     financial management systems requirements, applicable Federal 
     accounting standards, and the United States Government 
     Standard General Ledger at the transaction level.
       (b) Priority.--Each agency shall give priority in funding 
     and provide sufficient resources to implement this Act.
       (c) Audit Compliance Finding.--
       (1) In general.--Each audit required by section 3521(e) of 
     title 31, United States Code, shall report whether the agency 
     financial management systems comply with the requirements of 
     subsection (a).
       (2) Content of reports.--When the person performing the 
     audit required by section 3521(e) of title 31, United States 
     Code, reports that the agency financial management systems do 
     not comply with the requirements of subsection (a), the 
     person performing the audit shall include in the report on 
     the audit--
       (A) the name and position of any officer or employee 
     responsible for the financial management systems that have 
     been found not to comply with the requirements of subsection 
     (a);
       (B) all facts pertaining to the failure to comply with the 
     requirements of subsection (a), including--
       (i) the nature and extent of the noncompliance;
       (ii) the primary reason or cause of the noncompliance;
       (iii) any official responsible for the noncompliance; and
       (iv) any relevant comments from any responsible officer or 
     employee; and
       (C) a statement with respect to the recommended remedial 
     actions and the timeframes to implement such actions.
       (d) Compliance Determination.--
       (1) In general.--No later than the date described under 
     paragraph (2), the Director, acting through the Controller of 
     the Office of Federal Financial Management, shall determine 
     whether the financial management systems of an agency comply 
     with the requirements of subsection (a). Such determination 
     shall be based on--
       (A) a review of the report on the applicable agency-wide 
     audited financial statement;
       (B) the agency comments on such report; and
       (C) any other information the Director considers relevant 
     and appropriate.
       (2) Date of determination.--The determination under 
     paragraph (1) shall be made no later than 90 days after the 
     earlier of--
       (A) the date of the receipt of an agency-wide audited 
     financial statement; or
       (B) the last day of the fiscal year following the year 
     covered by such statement.
       (e) Compliance Implementation.--
       (1) In general.--If the Director determines that the 
     financial management systems of an agency do not comply with 
     the requirements of subsection (a), the head of the agency, 
     in consultation with the Director, shall establish a 
     remediation plan that shall include the resources, remedies, 
     and intermediate target dates necessary to bring the agency's 
     financial management systems into compliance.
       (2) Time period for compliance.--A remediation plan shall 
     bring the agency's financial management systems into 
     compliance no later

[[Page S9667]]

     than 2 years after the date on which the Director makes a 
     determination under paragraph (1), unless the agency, with 
     concurrence of the Director--
       (A) determines that the agency's financial management 
     systems are so deficient as to preclude compliance with the 
     requirements of subsection (a) within 2 years;
       (B) specifies the most feasible date for bringing the 
     agency's financial management systems into compliance with 
     the requirements of subsection (a); and
       (C) designates an official of the agency who shall be 
     responsible for bringing the agency's financial management 
     systems into compliance with the requirements of subsection 
     (a) by the date specified under subparagraph (B).
       (3) Transfer of funds for certain improvements.--For an 
     agency that has established a remediation plan under 
     paragraph (2), the head of the agency, to the extent provided 
     in an appropriation and with the concurrence of the Director, 
     may transfer not to exceed 2 percent of available agency 
     appropriations to be merged with and to be available for the 
     same period of time as the appropriation or fund to which 
     transferred, for priority financial management system 
     improvements. Such authority shall be used only for priority 
     financial management system improvements as identified by the 
     head of the agency, with the concurrence of the Director, and 
     in no case for an item for which Congress has denied funds. 
     The head of the agency shall notify Congress 30 days before 
     such a transfer is made pursuant to such authority.
       (4) Report if noncompliance within time period.--If an 
     agency fails to bring its financial management systems into 
     compliance within the time period specified under paragraph 
     (2), the Director shall submit a report of such failure to 
     the Committees on Governmental Affairs and Appropriations of 
     the Senate and the Committees on Government Reform and 
     Oversight and Appropriations of the House of Representatives. 
     The report shall include--
       (A) the name and position of any officer or employee 
     responsible for the financial management systems that have 
     been found not to comply with the requirements of subsection 
     (a);
       (B) the facts pertaining to the failure to comply with the 
     requirements of subsection (a), including the nature and 
     extent of the noncompliance, the primary reason or cause for 
     the failure to comply, and any extenuating circumstances;
       (C) a statement of the remedial actions needed; and
       (D) a statement of any administrative action to be taken 
     with respect to any responsible officer or employee.
       (f) Personal Responsibility.--Any financial officer or 
     program manager who knowingly and willfully commits, permits, 
     or authorizes material deviation from the requirements of 
     subsection (a) may be subject to administrative disciplinary 
     action, suspension from duty, or removal from office.

     SEC. 4. APPLICATION TO CONGRESS AND THE JUDICIAL BRANCH.

       (a) In General.--The Federal financial management 
     requirements of this Act may be adopted by--
       (1) the Senate by resolution as an exercise of the 
     rulemaking power of the Senate;
       (2) the House of Representatives by resolution as an 
     exercise of the rulemaking power of the House of 
     Representatives; or
       (3) the Judicial Conference of the United States by 
     regulation for the judicial branch.
       (b) Study and Report.--No later than October 1, 1997--
       (1) the Secretary of the Senate and the Clerk of the House 
     of Representatives shall jointly conduct a study and submit a 
     report to Congress on how the offices and committees of the 
     Senate and the House of Representatives, and all offices and 
     agencies of the legislative branch may achieve compliance 
     with financial management and accounting standards in a 
     manner comparable to the requirements of this Act; and
       (2) the Chief Justice of the United States shall conduct a 
     study and submit a report to Congress on how the judiciary 
     may achieve compliance with financial management and 
     accounting standards in a manner comparable to the 
     requirements of this Act.

     SEC. 5. REPORTING REQUIREMENTS.

       (a) Reports by Director.--No later than March 31 of each 
     year, the Director shall submit a report to the Congress 
     regarding implementation of this Act. The Director may 
     include the report in the financial management status report 
     and the 5-year financial management plan submitted under 
     section 3512(a)(1) of title 31, United States Code.
       (b) Reports by the Comptroller General.--No later than 
     October 1, 1997, and October 1, of each year thereafter, the 
     Comptroller General of the United States shall report to the 
     appropriate committees of the Congress concerning--
       (1) compliance with the requirements of section 3(a) of 
     this Act, including whether the financial statements of the 
     Federal Government have been prepared in accordance with 
     applicable accounting standards; and
       (2) the adequacy of uniform accounting standards for the 
     Federal Government.

     SEC. 6. CONFORMING AMENDMENTS.

       (a) Audits by Agencies.--Section 3521(f)(1) of title 31, 
     United States Code, is amended in the first sentence by 
     inserting ``and the Controller of the Office of Federal 
     Financial Management'' before the period.
       (b) Financial Management Status Report.--Section 3512(a)(2) 
     of title 31, United States Code, is amended by--
       (1) in subparagraph (D) by striking ``and'' after the 
     semicolon;
       (2) by redesignating subparagraph (E) as subparagraph (F); 
     and
       (3) by inserting after subparagraph (D) the following:
       ``(E) a listing of agencies whose financial management 
     systems do not comply substantially with the requirements of 
     the Federal Financial Management Improvement Act of 1996, the 
     period of time that such agencies have not been in 
     compliance, and a summary statement of the efforts underway 
     to remedy the noncompliance; and''.

     SEC. 7. DEFINITIONS.

       For purposes of this Act:
       (1) Agency.--The term ``agency'' means a department or 
     agency of the United States Government as defined in section 
     901(b) of title 31, United States Code.
       (2) Director.--The term ``Director'' means the Director of 
     the Office of Management and Budget.
       (3) Federal accounting standards.--The term ``Federal 
     accounting standards'' means applicable accounting 
     principles, standards, and requirements consistent with 
     section 902(a)(3)(A) of title 31, United States Code, and 
     includes concept statements with respect to the objectives of 
     Federal financial reporting.
       (4) Financial management systems.--The term ``financial 
     management systems'' includes the financial systems and the 
     financial portions of mixed systems necessary to support 
     financial management, including automated and manual 
     processes, procedures, controls, data, hardware, software, 
     and support personnel dedicated to the operation and 
     maintenance of system functions.
       (5) Financial system.--The term ``financial system'' 
     includes an information system, comprised of one or more 
     applications, that is used for--
       (A) collecting, processing, maintaining, transmitting, or 
     reporting data about financial events;
       (B) supporting financial planning or budgeting activities;
       (C) accumulating and reporting costs information; or
       (D) supporting the preparation of financial statements.
       (6) Mixed system.--The term ``mixed system'' means an 
     information system that supports both financial and 
     nonfinancial functions of the Federal Government or 
     components thereof.

     SEC. 8. EFFECTIVE DATE.

       This Act shall take effect on October 1, 1996.

  Mr. BROWN. Mr. President, several years ago, in an effort to identify 
excess spending in the federal budget, I inquired as to overhead costs 
in federal programs. I was advised that the federal accounting system 
makes it impossible to identify overhead expenses for most federal 
operations. The Federal Government, it turned out, has over two hundred 
separate primary accounting systems, making it impossible to compare 
something as basic as overhead costs.
  Worse, many of these systems are shamefully inadequate even on their 
own terms. A 1995 General Accounting Office report reveals that the 
Pentagon made more than $400 billion in adjustments to correct errors 
in defense reporting data for fiscal years 1991 to 1993--and the 
resulting statements still were not reliable. The Pentagon paid vendors 
$29 billion that could not be matched with supporting documents to 
determine if these payments were proper. The Pentagon made an estimated 
$3 million in fraudulent payments to a former Navy supply officer for 
more than 100 false invoice claims, and approximately $8 million in 
Army payroll payments were made to unauthorized persons, including six 
``ghost'' soldiers and 76 deserters.
  The Internal Revenue Service offers another disturbing example of 
poor financial management and its consequences. The General Accounting 
Office testified before the Governmental Affairs Committee on June 6, 
1996 that despite years of criticism, ``fundamental, persistent 
problems remain uncorrected'' at the IRS. For example, the IRS cannot 
substantiate the amounts reported for specific types of taxes 
collected, such as social security taxes, income taxes, and excise 
taxes. The IRS cannot even verify a significant portion of its own 
nonpayroll operating expenses, which total $3 billion. One can 
hardly resist observing that this is the agency that demands precision 
from every taxpayer in America.

  The General Accounting Office also reports that the Medicare program 
is undermined by flawed payment policies, weak billing controls and 
inconsistent program management. Instances of fraud and abuse abound in 
the $190 billion program. In a January 1996 report, GAO detailed a long 
list of frauds. They include a $4.3 million overpayment to a company 
providing heart monitoring services as well as 4,000 fraudulent claims 
by a Medicare supplier totaling approximately $1.5 million. GAO 
discovered that frauds like these are perpetrated on a vast scale; one 
recently uncovered was operating across 20 states. The GAO report

[[Page S9668]]

locates the root of the problem in financial management: ``[O]ur work 
shows that outlandish charges or very large reimbursements routinely 
escape the controls and typically go unquestioned.'' Even when 
fraudulent billing is discovered, Medicare usually has paid out the 
money and rarely acts effectively to recover it.
  Together the Department of Defense, the IRS, and the Medicare Program 
are just a small part of a government so massive and complex that it 
controls and directs cash resources of almost $2 trillion per year, 
issuing 900 million checks and maintaining a payroll and benefits 
system for over 5 million government employees. Clearly it is 
imperative that the government use a uniform and widely accepted set of 
accounting standards across the hundreds of agencies and departments 
that make up this government.
  Today we are taking a great step toward putting Federal financial 
management in order. The Federal Financial Management Improvement Act 
of 1996 requires that all Federal agencies implement and maintain 
uniform accounting standards. The result will be more accurate and 
reliable information for program managers and leaders in Congress, 
meaning better decisions will be made: tax dollars will be put to 
better use, and a measure of confidence in the government will be 
restored. While this is not the kind of legislation that makes 
headlines, it is of great significance and I am proud that the Senate 
has passed it. I am very grateful to Senator Stevens for steering the 
bill through his Committee.
  Mr. GLENN. Mr. President, over the last 6 years, we have enacted 
several laws to improve Federal agency financial management. The Chief 
Financial Officers Act of 1990 put into place the first requirements 
for agencies to prepare annual audited financial statements. These 
requirements were strengthened by the Government Management Reform Act 
of 1994, and now all the major agencies are covered by the CFO Act 
requirements.
  In oversight hearings conducted by the Governmental Affairs 
Committee, both when I was Chair and now as Ranking Minority Member, we 
have seen how these laws are making significant improvements in agency 
financial management. Unfortunately, we also have seen that many 
agencies still have a ways to go to make the necessary reforms.
  The legislation before us today, the ``Federal Financial Management 
Improvement Act'' (S. 1130), which I co-sponsored, helps agencies go 
those final miles to put into place necessary financial management 
systems and provide real accountability for the expenditure of public 
funds.
  The legislation addresses the financial management systems that are 
needed to provide financial accountability. Annual financial statements 
will not do it alone, if agencies do not have the systems or personnel 
in place to account for their financial operations. Accordingly, the 
bill requires agencies to comply with applicable accounting standards 
and systems requirements.
  The legislation further requires auditors to identify agencies with 
deficient financial management systems. This puts added teeth in the 
CFO Act financial statement process, and will lead to practical 
remediation steps, to be overseen by OMB. I am concerned, however, that 
the legislation's requirements for auditors to identify officials 
responsible for agency financial systems may have the untoward 
consequence of intimidating our civil servants.
  If this requirement is used to identify specific decisions that have 
frustrated the development of needed financial management reforms, it 
will be a success. It will also be a success if it creates incentives 
for improved training for financial management personnel. If, however, 
it is used to unfairly blame managers who are constrained by resource 
or policy decisions made above them, whether in the agency or by 
Congress, then we will have to revisit this requirement. At this point, 
however, I believe that on balance the time has come to demand more 
accountability from our agencies and agency officials for their 
financial management performance.
  I commend Senator Brown for introducing this bill and for working 
with us in Committee to improve it. I believe the ``Federal Financial 
Management Improvement Act'' is important legislation and will work to 
improve agency financial management. I urge my colleagues to support 
it.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the 
committee substitute be agreed to, the bill be deemed read the third 
time, passed, the motion to reconsider be laid upon the table, and any 
statement relating to this bill appear at the appropriate place in the 
Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (S. 1130), as amended, was deemed read the third time and 
passed.

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