[Senate Report 104-339]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 548
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-339
_______________________________________________________________________


 
         FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                              to accompany

                                S. 1130

    TO PROVIDE FOR THE ESTABLISHMENT OF UNIFORM ACCOUNTING SYSTEMS, 
  STANDARDS, AND REPORTING SYSTEMS IN THE FEDERAL GOVERNMENT, AND FOR 
                             OTHER PURPOSES




                 July 30, 1996.--Ordered to be printed


                   COMMITTEE ON GOVERNMENTAL AFFAIRS

   TED STEVENS, Alaska, Chairman
JOHN GLENN, Ohio                     WILLIAM V. ROTH, Jr., Delaware
SAM NUNN, Georgia                    WILLIAM S. COHEN, Maine
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DAVID PRYOR, Arkansas                PETE V. DOMENICI, New Mexico
JOSEPH I. LIEBERMAN, Connecticut     THAD COCHRAN, Mississippi
DANIEL K. AKAKA, Hawaii              JOHN McCAIN, Arizona
BYRON L. DORGAN, North Dakota        BOB SMITH, New Hampshire
    Albert L. McDermott, Staff 
             Director
      John E. Mercer, Counsel
  Leonard Weiss, Minority Staff 
             Director
  Michal Sue Prosser, Chief Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Purpose..........................................................1
 II. Summary..........................................................1
III. Background and Need for Legislation..............................2
 IV. Legislative History of S. 1130...................................7
  V. Section-by-Section Analysis......................................9
 VI. Regulatory Impact of Legislation................................13
VII. Cost Estimate of Legislation....................................14
VIII.Text of S. 1130 as Reported.....................................15

 IX. Changes to Existing Law.........................................20


                                                       Calendar No. 548
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-339
_______________________________________________________________________



          FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996

                                _______
                                

                 July 30, 1996.--Ordered to be printed

_______________________________________________________________________


Mr. Stevens, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 1130]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 1130) to provide for the establishment of 
uniform accounting systems, standards, and reporting systems in 
the Federal government, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill, as amended, do pass.

                               I. Purpose

    The purpose of S. 1130, the Federal Financial Management 
Improvement Act of 1996, is to provide for a more productive, 
efficient and accountable Federal government through 
implementation of consistent and uniform accounting standards 
throughout all Federal agencies.

                              II. Summary

    On May 16, 1996, the Committee on Governmental Affairs 
voted unanimously to report S. 1130, the Federal Financial 
Management Improvement Act of 1996, as introduced by Senator 
Brown and amended by a substitute offered by Senator Brown. The 
Act as amended requires each Federal agency to implement and 
maintain financial management systems that comply with 
applicable accounting requirements and standards. S. 1130 
directs each auditor of an agency's financial statement to 
report whether the agency's financial management systems have 
implemented uniform accounting standards in accordance with 
this Act.
    The Director of the Office of Management and Budget, acting 
through the Controller of the Office of Federal Financial 
Management, shall make a separate determination as to whether 
each agency's financial management systems comply with 
applicable requirements and standards. If the Controller 
determines that the systems do not comply, the agency head, in 
consultation with the Controller, shall develop and implement a 
remediation plan. Failure to remedy systems defects within two 
years (or an agency-designated deadline when compliance cannot 
be achieved within two years) triggers an OMB report to 
Congress on the deficient systems and the officers and 
employees responsible for the deficiency.

                       III. Need for Legislation

    The Committee believes that the financial management 
systems of the Federal government are inadequate. Correcting 
these and other financial management problems has been a 
longstanding priority for the Committee. The Chief Financial 
Officers Act of 1990 (CFO Act), for example, laid the 
groundwork for significant financial management reform through 
the appointment of agency chief financial officers and 
requirements for annual audited financial statements. Even with 
such reforms, however, Federal agencies still lack many of the 
basic systems needed to provide uniform and reliable financial 
information. Without such systems, Federal finances are still 
far from what American taxpayers have a right to expect.
    Over two hundred years ago, the Framers of the Constitution 
wrote: ``No money shall be drawn from the Treasury, but in 
consequence of appropriations made by law; and a regular 
statement and account of all public money shall be published 
from time to time'' (United States Constitution, Article 1, 
Section 9, Clause 7). These words were written when the sum of 
all pubic money was a tiny fraction of what it is today. 
Federal outlays for Fiscal Year 1997 are projected to reach 
$1.6 trillion. These are the outlays of a government so massive 
and complex that each year it controls and directs cash 
resources of almost two trillion dollars, issuing 900 million 
checks on more than 800 separate accounts and maintaining 
payroll and benefits systems for 4\1/2\ million government 
employees. Inevitably, given the size of this government, even 
relatively small errors and inefficiencies of financial 
management regularly cost the taxpayers hundreds of millions of 
dollars.
    A uniform and widely accepted set of accounting standards 
and practices across the hundreds of agencies that make up this 
$1.6 trillion budget is clearly essential. Amazingly, however, 
there are more than 200 primary accounting systems within the 
Federal government. Despite an obvious need for uniformity, 
many agencies of the United States government set their own 
accounting standards, often making their account incompatible 
with those of other agencies. The American Institute of 
Certified Public Accountants pointed out in a 1989 publication 
that the Budget and Accounting Procedures Act of 1950 directed 
the GAO to issue accounting standards. GAO did so, but these 
standards have never been uniformly used. ``The primary reason 
for this is that the Federal government still does not provide 
an environment that insists on compliance with those 
standards.'' Although Committee action has led to the 
establishment of important reforms since 1989, most notably the 
1990 CFO Act, oversight has shown that mechanisms needed to 
ensure the implementation and enforcement of uniform accounting 
practices throughout the Federal government require substantial 
improvement.
    The costs are high. While we cannot know exactly how many 
billions of taxpayers dollars have been wasted, some alarming 
data is available. A 1995 GAO 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. In addition, the 
Pentagon paid vendors $29 billion that could not be matched 
with supporting documents to determine if the payments were 
proper. The Pentagon made an estimate $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. Charles Bowsher, 
Comptroller General of the United States, testified before this 
Committee in December of 1995 that ``DOD does not have 
effective financial management operations. * * * No single 
military service or major component has been able to withstand 
the scrutiny of a financial statement audit.''
    GAO 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. GAO issued a report in January 1996, 
detailing 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 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.
    The Internal Revenue Service offers another example of poor 
financial management and its consequences. According to GAO 
testimony before this Committee on June 6, 1996, ``fundamental, 
persistent problems remain uncorrected'' despite concerted 
efforts by this Committee, GAO, and others over the past 
several years to improve financial management at the Internal 
Revenue Service. Amounts of total revenue and tax refunds ($1.4 
trillion and $122 billion respectively for fiscal year 1995) 
cannot be verified or reconciled to accounting records 
maintained for individual taxpayers in the aggregate. 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 
the not inconsiderable sum of $3 billion. This kind of 
sloppiness within the very agency that demands precision from 
every taxpayer in America reflects a reckless disregard for 
those taxpayers and it can no longer be tolerated.
    Unfortunately, financial management problems are not 
isolated to just a few agencies. Each year, the Federal 
government spends more than $100 billion of taxpayers' money on 
travel, rent, printing and reproduction, utilities, phone 
bills, and office supplies. But Federal agencies do not have a 
uniform and consistent accounting system to keep and track 
these overhead costs. Indeed, the Federal government does not 
even have a single, uniform definition of ``overhead cost.'' 
Each agency, therefore, has its own ``overhead'' category, 
making it impossible for the public to know just how much money 
the Federal government as a whole is spending on certain 
expenses.
    The results of poor financial management are threefold. 
First, the kind of egregious waste of taxpayer money 
illustrated above is unavoidable. Second, agency management is 
less competent at every level. Agencies are less able to 
conduct their functions, to manage their investments, to follow 
congressional directives, and to provide accountability for the 
billions of taxpayer dollars entrusted to them. Agencies 
experience increased costs and reduced performance. Third, poor 
financial management in Federal agencies means unreliable 
financial and program data for Congress, which in turn 
undermines the ability of elected officials to make intelligent 
decisions about responsible and effective uses of taxpayer 
money. The inescapable consequence of poor financial management 
is a well-deserved loss of confidence in Federal government.
    Time and again this Committee has been confronted by 
financial management system failures in Federal agencies with 
no one accountable for the failure and no one responsible for 
the solution. S. 1130 establishes this responsibility. It 
builds on the requirements of the CFO Act to identify minimal 
financial systems requirements and use the audit process to 
assure that these requirements are implemented and maintained. 
It establishes responsibility for identifying and remedying 
deficient systems. It demands accountability for the problems 
and for their solutions. It will ensure that CFO Act financial 
statements more clearly identify for managers and policy makers 
how and where revenue is being spent. It will enhance to role 
and usefulness of CFO Act audits. It will force Federal 
agencies to compile and report costs in the same manner from 
one fiscal year to the next and make one agency's financial 
statements comparable to another's. This bill will help develop 
a Federal accounting system more closely linked to the budget 
and more focused on program outputs and outcomes. Better 
congressional decisions and better agency management will in 
turn help restore confidence in the government.

                         legislative background

    In the past decade there have been a variety of efforts to 
reform Federal financial management and some very important 
legislative steps have been taken since 1990. The foundation of 
this progress is the Chief Financial Officers Act of 1990 (CFO 
Act), which was followed by the Government Performance and 
Results Act of 1993 (GPRA), the Government Management Reform 
Act of 1994 (GMRA), and the substantial body of work on 
accounting concepts and standards by the Federal Accounting 
Standards Advisory Board (FASAB).
    In November 1990, Congress enacted the CFO Act. This 
landmark legislation established a CFO structure in 23 major 
agencies and the Office of Management and Budget (OMB) to 
provide leadership in addressing the decades of neglect in 
agency financial management operations. To help develop 
adequate controls and to generate increased pressure to fix 
longstanding problems, the CFO Act required agencies to prepare 
and have audited financial statements for revolving funds, 
trust funds and commercial activities. For 10 agencies on a 
pilot basis, Congress required preparation and audit of 
financial statements covering an agency's entire operation. The 
CFO Act pilots successfully demonstrated that regular 
preparation of financial statements and independent audit 
opinions clarified the scope and depth of financial management 
problems as well as the steps necessary to solve the problems. 
The financial statements' audits serve as an annual report card 
that generates the pressure to focus on and fix longstanding 
problems. The success of these pilots demonstrated the value of 
audited annual financial statements and formed the basis for 
passage of the 1994 GMRA.
    The GMRA expanded the CFO Act to all portions of the 23 
CFO-covered agencies and also added the Social Security 
Administration as a separate entity, increasing the number of 
CFO Act agencies to 24. Beginning with fiscal year 1996, the 
CFO Act as amended by the GMRA requires the head of each 
covered agency to submit audited agency financial statements by 
March 1, 1997, and annually thereafter. Pursuant to 31 U.S.C. 
3521(e), an agency's Inspector General, an independent external 
auditor, or, at his discretion or at the request of Congress, 
the Comptroller General shall audit each agency's financial 
statement.
    Beginning with fiscal year 1997, GMRA requires that the 
Comptroller General annually audit the consolidated financial 
statements of the executive branch. The committee strongly 
believes in the importance of these audit requirements, which 
are a key component of ensuring compliance with Federal 
accounting and system standards under S. 1130. The annual 
audits must be a high priority of the Inspectors General and 
the Comptroller General, with Congress making available the 
appropriate level of resources for this work.
    In addition to these legislative initiatives, the role of 
the Government Performance and Results Act of 1993 (GPRA) 
should be noted. This act sets forth the major steps Federal 
agencies need to take to achieve a results-oriented management 
approach. They are to develop a long-term strategic plan, 
establish annual performance measures to monitor progress in 
meeting strategic goals, and link performance information to 
resource requirements through the budget. GPRA requires at 
least five performance budgeting pilots for fiscal years 1998 
and 1999, which would systematically show the direct linkage 
between budgeted dollars and levels of program performance. 
Development of meaningful program performance budgets will 
require the effective implementation of both GPRA and the CFO 
Act.
    During consideration of the CFO Act in 1990, the 
Comptroller General and the Director of OMB agreed to a 
cooperative approach to development of accounting standards and 
practices for the Federal government. This approach bridged the 
historic institutional differences concerning leadership in 
this area. Since its creation in the Budget and Accounting Act 
of 1921, GAO was largely responsible for the accounting and 
auditing functions of the Federal government. From 1921 until 
1950, GAO was engaged largely in auditing the vouchers 
supporting the accounts of government officials responsible for 
certifying and disbursing the government's payments of its 
bills and obligations.
    After passage of the Budget and Accounting Procedures Act 
of 1950, GAO's role in Federal accounting shifted largely from 
day-to-day financial management to study and oversight. 
Authority for budgetary standards resided in the OMB and cash-
type reporting duties in the Treasury Department. Over the same 
period, agencies developed accounting systems to serve their 
particular needs, including specialized systems for divisions 
within a department. It has not been uncommon for these systems 
to record transactions in a manner inconsistent and 
incompatible with accounts maintained at the department level. 
The results of this process included uncertainties in Federal 
accounting standards and inconsistent accounting systems.
    A major breakthrough took place in 1990, therefore, when 
during the same period in which Congress passed the CFO Act, 
the Secretary of the Treasury, the OMB Director, and the 
Comptroller General agreed to establish the Federal Accounting 
Standards Advisory Board (FASAB). FASAB was charged with 
developing and recommending accounting standards for the 
Federal government. Once Treasury, OMB and GAO review and adopt 
a recommended standard, OMB and GAO each publish the standard 
and it becomes effective as a Federal Accounting Standard. It 
is these standards that the agency CFO's should use in 
developing the agency's integrated accounting and financial 
management systems.
    After six years of work, FASAB is on the verge of 
completing the Federal government's first set of comprehensive 
accounting standards using this consensus approach. The FASAB 
has organized its standards into ten separate statements. They 
are (1) Objectives of Federal Financial Reporting, (2) 
Accounting for Selected Assets and Liabilities, (3) Accounting 
for Direct Loans and Loan Guarantees, (4) Accounting for 
Inventory and Related Property, (5) Accounting for Liabilities 
of the Federal Government, (6) Managerial Cost Accounting 
Standards for the Federal Government, (7) Entity and Display, 
(8) Accounting for Property, Plant, and Equipment, (9) Revenue 
and Other Financing Sources, and (10) Supplemental Stewardship 
Reporting.
    The 1990 Memorandum of Understanding among GAO, OMB, and 
Treasury that created FASAB was a huge step forward in the 
process of setting uniform, consistent accounting standards. S. 
1130 leaves the productive balance of this MOU in place and 
seeks to shift the focus of reform efforts to implementation of 
the agreed-upon standards. While development of the accounting 
standards is an enormous accomplishment, however, the Committee 
wishes to emphasize that the benefits of good financial 
management will flow from the implementation of these standards 
and not simply their promulgation. It will ensure that CFO Act 
financial statements more clearly identify for managers and 
policy makers how and where revenue is being spent. It will 
enhance the role and usefulness of CFO Act audits.
    There also have been administrative efforts specifically 
aimed at improving agency financial systems. In September 1995, 
the Joint Financial Management Improvement Program (JFMIP), a 
joint Treasury, OMB, and GAO program to strengthen Federal 
agency financial management practices, issued a revised and 
updated version of the Core Financial System Requirements. This 
document is a major step forward in developing the effective 
agency financial systems envisioned by the CFO Act and this 
legislation and is the most recent in a series of JFMIP 
publications detailing Federal financial management system 
requirements.
    Despite these legislative and administrative 
accomplishments, it remains true that the Federal government 
still does not have a mechanism compelling implementation of 
uniform accounting standards. In March 1995, OMB reported that 
39 percent of agency systems were originally implemented more 
than 10 years ago and that 53 percent need to be replaced or 
upgraded within the next five years. These statistics point out 
that there is a window of opportunity to advance uniform 
accounting standards across the Federal government if the 
required mandate for such standards is established quickly. S. 
1130 will strengthen the CFO Act and the GMRA by providing the 
clear mandate needed for implementation of uniform accounting 
standards throughout the Federal government.

                   IV. Legislative History of S. 1130

    S. 1130 was introduced on August 8, 1995, by Senator Brown 
and cosponsored by Senators Craig, Burns, and Inhofe. It was 
referred to the Governmental Affairs Committee. Senators Lott, 
Glenn, Nickles, Gorton, Levin, Faircloth, Grassley, and Kyl 
subsequently joined as cosponsors of the legislation.
    The Committee considered S. 1130 at a hearing on December 
14, 1995. The witnesses appearing before the Committee included 
the Honorable Charles A. Bowsher, Comptroller General, U.S. 
General Accounting Office, and G. Edward DeSeve, Controller, 
Office of Federal Financial Management, Office of Management 
and Budget.
    In his testimony, Mr. DeSeve agreed that ``[u]nderlying 
both the CFOs Act and GMRA is the need for a comprehensive set 
of Federal accounting standards and principles.'' For this 
reason, he pointed out, the Federal Accounting Standards 
Advisory Board was established in October of 1990. ``At that 
time, the Federal government did not have a comprehensive set 
of accounting standards. However, it was recognized that a 
comprehensive set of accounting standards was needed, and that 
compliance with these standards must be measured on a regular 
basis in order to ensure the integrity of the financial 
information reported to the American taxpayers, managers, 
elected officials, and policy makers.''
    Mr. Bowsher agreed in his testimony that the CFO Act has 
resulted in steady progress, but also pointed out that ``a 
great deal more perseverance will be required to sustain the 
current momentum and successfully overcome decades of serious 
neglect in fundamental financial management operations and 
reporting methods.'' In particular, he emphasized the fact that 
establishing uniform accounting standards is only the 
beginning: they must be put into use and maintained throughout 
the government. ``While the development of accounting standards 
as envisioned by FASAB and its three principals is very 
important to strengthening accountability, the benefits will 
come from their full implementation.'' Moreover, ``Financial 
audits have also shown that agencies often do not follow 
rudimentary bookkeeping practices, such as reconciling their 
accounting records with Treasury accounts or their own 
subsidiary ledgers. These audits have identified hundreds of 
billions of dollars of accounting errors--mistakes and 
omissions that can render information provided to managers and 
the Congress virtually useless. This situation could be much 
improved if more rigor were applied in following existing 
policies and procedures.''
    In addition to encouragement for the goals of the bill, 
however, some reservations were expressed by OMB, among others, 
that certain provisions of the bill as it was introduced could 
be improved. The bill as introduced placed in statute the 1990 
Memorandum of Understanding that established FASAB. This would 
have granted FASAB permanent statutory authority to prescribe 
accounting standards regardless of the will of GAO, OMB, and 
Treasury. OMB expressed concern that putting into law this 
voluntary interbranch agreement on the authority to prescribe 
accounting standards might violate the constitutional principle 
of separation of powers. The substitute amendment offered by 
Senator Brown at the markup recognized this concern and avoided 
any risk of disrupting the balance achieved by the 1990 MOU by 
instead requiring compliance with applicable accounting 
standards.
    A second concern raised about the bill as it was originally 
drafted regarded incentives for compliance with S. 1130. The 
bill as introduced established budgetary penalties to be 
imposed on noncompliant agencies. These penalties were strict: 
in the first year of noncompliance, there would be a one 
percent across-the-board reduction in an agency's budget. This 
reduction would increase by one percent each year until the 
agency's budget had been cut by a total of five percent after 
the fifth year of noncompliance. Also in the bill as introduced 
was a provision that established criminal penalties for 
officers and employees of a noncompliant agency who knowingly 
and willingly deviated from the requirements of the Act. 
Because of legitimate concerns raised about the viability and 
effectiveness of these provisions, the markup substitute took a 
different approach to implementation enforcement.
    The substitute requires no budget cuts and no criminal 
penalties. Instead, S. 1130 encourages implementation of 
uniform accounting and financial management practices by 
assigning an active enforcement role to OMB. The bill would 
require OMB to review each agency's audited financial statement 
as well as other data in order to determine compliance. Where 
noncompliance is found, OMB would work closely with the head of 
the agency to bring about implementation as quickly as 
possible. Where the agency fails to remedy problems even with 
assistance, OMB would report the failure to Congress. The 
Committee believes that this process would expose poor 
financial management and enable both OMB and the Congress to 
apply significant pressure to noncompliant agencies and their 
financial management officers and therefore to bring about 
compliance with uniform accounting standards and financial 
management systems requirements.
    The Committee held a markup on May 16, 1996. It favorably 
reported the substitute to S. 1130 offered by Senator Brown by 
voice vote.

                     V. Section-by-Section Analysis

Section 1. Short title

    Section 1 provides that this Act may be cited as the 
``Federal Financial Management Improvement Act of 1996.''

Section 2. Findings and purposes

    In subsection (a), Congress finds that while much effort 
has been devoted to strengthening internal controls and 
improving Federal accounting standards--through implementation 
of the CFO Act of 1990, for example--Federal accounting 
standards have not been uniformly implemented in agency 
financial management systems. The resulting management 
deficiencies have led to an inability to identify costs and 
liabilities and therefore an inability to assure the American 
people that resources are being efficiently used and 
safeguarded.
    To overcome the loss of confidence in the Federal 
government, Federal agencies must incorporate accounting 
standards and adopt financial management systems requirements 
so that all the assets and liabilities, revenues and 
expenditures, and the full costs of programs and activities can 
be consistently and accurately recorded, monitored and 
reported. Congress further finds that FASAB, through the 
cooperation of Treasury, OMB, and GAO, has made substantial 
progress developing a comprehensive set of accounting concepts 
and standards. With this important step largely completed, the 
next step is to assure the incorporation of these standards 
into Federal financial management systems.
    Accordingly, the overall purpose of this bill is to assure 
that agency financial management systems comply with applicable 
accounting standards and financial management system 
requirements in order to provide more uniform and useful 
financial information as required by the CFO Act. Subsection 
(b) identifies the separate purposes of the bill that in the 
aggregate add up to improved financial management.

Section 3. Implementation of Federal financial management improvements

    Subsection (a) directs each Federal agency to implement and 
maintain financial management systems that comply with (1) 
Federal financial management systems requirements, for example 
as contained in OMB Circular A-127, ``Financial Management 
Systems,'' (2) applicable Federal accounting standards, for 
example those recommended by FASAB and issued by OMB and GAO, 
and (3) the United States Government Standard General Ledger at 
the transaction level. These are the three levels of financial 
management standards. With the completion of the recommended 
FASAB standards, the promulgation of OMB financial management 
guidance, and the ongoing work of JFMIP, modern, effective, 
uniform Federal financial management principles and standards 
will be available for implementation at each of these levels.
    Subsection (b) directs each Federal agency to give priority 
in funding and devote sufficient resources to implement the 
Act. The Committee expects agencies to anticipate the costs of 
implementation and to prepare for these costs in budget 
requests as well as internal planning.
    Subsection (c) builds on the CFO Act audit requirement in 
31 U.S.C. 3521(e). As a part of the CFO Act audit of agency 
financial statements, each audit shall report whether the 
agency financial management system complies with the 
requirements of Section 3(a) of this Act. By ``compliance'' 
this Committee intends for auditors to insist on rigorous 
adherence to the accounting standards listed in Section 3(a). 
The bill initially qualified compliance by requiring 
``substantial compliance.'' The Committee expects that the 
audit community will discharge this compliance function 
consistent with established practices of the profession and the 
exercise of sound professional judgment.
    If an auditor reports agency systems as noncompliant, the 
auditor shall include in the audit report (1) the name and 
position of officer responsible for the financial management 
systems in question; (2) all facts available and relevant to 
the system's failure, including the scope or extent of the 
failure, the primary reason for the failure (such as inadequate 
resources, contractor default, lack of qualified staff, etc.), 
any official responsible for the failure, and any relevant 
comments from the responsible officer or employee; and finally 
(3) recommended remedial actions and a time frame to implement 
them.
    The Committee wishes to emphasize that paragraph 
(2)(B)(iii) is not a repetition of paragraph (2)(A). In 
subparagraph (A) the auditor is asked to list the name and 
position of any officer responsible for the deficient financial 
management systems. In subparagraph (B)(iii) the auditor is 
asked to list any official responsible for the noncompliance of 
these systems. This latter requirement is broader in the sense 
that the auditor could identify responsibility for the 
noncompliance at any or several levels and not simply at the 
point where an individual is directly responsible for the 
financial management systems. The Committee understands that 
the individuals bearing direct responsibility for financial 
management may not be responsible for higher decisions, such as 
staffing or funding priorities, that are ultimately responsible 
for the agency's failure to comply with this Act. The 
Committee's intent, however, is to identify all causes of 
deficient financial management and to hold responsible all 
officials who made decisions, took actions, or failed to make 
decisions or take actions that led to the deficiency.
    Subsection (d) assigns to the OMB Director, acting through 
the Controller of OMB's Office of Federal Financial Management 
(OFFM), the task of determining whether the agency's financial 
management systems comply with the bill's requirements. The 
Committee expects that the Director will scrutinize the system 
not only of the agency as a whole, but in the case of large 
agencies, the systems of distinct components within those 
agencies. The Controller has a definite time frame within which 
to make his determination: no later than 90 days after the 
receipt of an agency-wide audited financial statement or the 
end of the fiscal year after the year covered by the audited 
financial statements, whichever comes first. The bill permits 
the Controller's determination to be based on any information 
deemed relevant and appropriate. Recognizing that this process 
will likely require the expenditure of considerable resources 
for the small staff of the Controller, the Committee urges that 
adequate resources be provided to carry out this mandate 
including from those made available under paragraph (3) of 
subsection (e).
    The Committee believes that assignment of this function to 
the OFFM Controller is appropriate because it builds upon the 
financial management functions assigned to that Office by 
Section 203 of the CFO Act. From the Committee's perspective, 
this bill enhances the Controller's leadership on issues of 
Federal financial management. Although the additional 
responsibilities placed on the Controller may present certain 
challenges if executive agencies cannot themselves manage to 
avoid or solve problems, the solution is active intervention by 
the Controller's office that moves the agency toward a 
solution. If an agency's financial management systems do not 
measure up the minimal requirements contained in this bill, the 
bill envisions that the Controller would actively work with the 
agency to help identify and develop solutions for noncompliant 
systems. In short, the Committee expects OMB, acting through 
the Controller, to bring its expertise, talent, energy, and 
clout to bear to identify and solve problems.
    Subsection (e) details OMB's authority to obtain agency 
compliance with the requirements of Section 3(a). If OMB, 
acting through the Controller, determines that an agency's 
system do not comply, the head of the agency, in active 
consultation with the Controller, shall establish a remediation 
plan including the time frame and resources necessary to 
achieve compliance. The only limitation on the agency's 
discretion to fashion a remediation plan is that the time frame 
to achieve compliance may not exceed two years unless the head 
of the agency, with the concurrence of OMB, announces that the 
agency's financial management systems are so completely 
deficient that compliance cannot be achieved within two years. 
In this case 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 
remedial action.
    Paragraph (3) of subsection (e) anticipates and answers 
what is often the primary cause of financial management 
failure: lack of resources. While this Committee defers to 
appropriations of Congress in setting agency budgets, paragraph 
(3) authorizes that up to 2 percent of available agency 
appropriations may be transferred to financial management 
systems. This provision reflects the strong sentiment in the 
Committee that financial management is a top priority and 
should be accorded such priority in allocation of funds. The 
Committee recognizes, however, that this provision is 
permissive in the sense that it depends on action by the 
Appropriations Committees.
    Paragraph (4) of subsection (e) addresses the consequences 
of an agency failure to bring its financial management systems 
into compliance within the time frames established pursuant to 
subparagraph (2). Each audited financial statement will contain 
the auditor's compliance finding, triggering the bill's 
compliance determination and implementation process. If an 
agency's financial statement auditor continues to report 
noncompliance with the requirements of Section 3(a) and OMB 
does not determine otherwise, the Director, OMB, shall report 
this agency to the Committees on Appropriations and Government 
Reform and Oversight of the House of Representatives and to the 
Committees on Appropriations and Governmental Affairs of the 
Senate. The Report is to include the names and positions of the 
responsible officers and employees, all available facts 
relating to the failure to comply, additional remedial actions 
needed, and any administrative actions taken with respect to 
the responsible officers and employees.
    Subsection (f) authorizes administrative disciplinary 
action, suspension from duty, or removal from office for any 
responsible officer or employee who knowingly and willfully 
commits, permits, or authorizes a deviation from the 
requirements of the Act. This provision is modeled after a 
similar provision in the Antideficiency Act.

Section 4. Application to Congress and the judicial branch

    This section is intended to strongly encourage the Senate, 
the House of Representatives and the Judicial Conference of the 
United States Courts to adopt the bill's financial management 
requirements. Effective management of the multi-billion dollar 
budgets of the legislative and judicial branches requires the 
same accurate financial information that is now required of 
agencies of the executive branch. Use of uniform accounting 
standards and financial management systems requirements across 
all branches of the Federal government would also permit 
interbranch analysis and comparisons. To this end, subsection 
(b) tasks the Secretary of the Senate and the Clerk of the 
House to complete a study together by October 1 1997, on how 
the legislative branch may achieve compliance with the bill's 
requirements. The Chief Justice shall also complete such a 
study by the same date regarding compliance by the Judicial 
Branch.

Section 5. Reporting requirements

    The bill requires two separate reports. First, the Director 
of OMB is required to report no later than March 31 of each 
year on implementation of this Act. To minimize the burden, the 
Director is authorized to include this report as part of either 
of two CFO Act reports: the Financial Management Status Report 
or the 5-Year Financial Management Plan.
    To aid congressional oversight, the bill requires the 
Comptroller General to report annually on agency financial 
management. The Committee expects that the Comptroller 
General's report will be summary in form. The purpose is to 
keep Congress advised on the availability and status of 
standards for Federal financial management: Is there a clearly 
established standard for agencies to follow at each level of 
financial management? Have these standards been updated? What 
is the status of compliance with these standards? Answers to 
these questions could be part of the Comptroller's report on 
the consolidated financial statements of the United States 
government.

Section 6. Conforming amendments

    Subsection (a) amends section 3521(f) of title 31, United 
States Code, so that the agency's financial statement auditor 
will supply a copy of the audit report to the Controller, 
Office of Federal Financial Management. Subsection (b) amends 
section 3512(a)(2) of title 31, United States Code, to include 
information in OMB's annual financial management status report 
concerning agency financial management systems that do not 
comply with the requirements of this bill, the period of time 
that they have been noncompliant, and a summary statement of 
remedial efforts underway.

Section 7. Definitions

    Section 7 contains a list of definitions. Two terms, 
``agency'' and ``Federal accounting standards'' are defined by 
reference to the CFO Act. ``[A]gency is defined by reference to 
the list of departments and independent agencies and 
commissions contained in section 901 (b) of title 31, United 
States Code. The definition of the term ``Federal Accounting 
Standards'' makes clear that it includes concept statements 
with respect to the objectives of Federal financial reporting 
developed [and issued] by FASAB. Section 7 also includes 
necessary definitions for ``financial management systems,'' 
``financial and ``mixed systems.''

Section 8. Effective date

    The effective date of this Act is October 1, 1996. In other 
words, this Act would apply to any financial management 
statement initiated after this date, and an audit of such 
financial statement shall report whether the agency's financial 
management systems satisfy the bill's requirements.

                  VI. Regulatory Impact of Legislation

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of S. 1130. The legislation is 
designed to improve the financial management systems of the 
Federal government and will have no adverse impact on the 
public:
          (1) Regulatory Impact.--The legislation will impose 
        no regulations on individuals, consumers, or 
        businesses;
          (2) Economic Impact.--The legislation will have no 
        economic impact on individuals, consumers, or 
        businesses;
          (3) Privacy Impact.--The legislation will have no 
        privacy impact on individuals, consumers, or 
        businesses; and
          (4) Paperwork Impact.--The legislation will impose no 
        paperwork burdens on anyone outside the Federal 
        government.

                   VII. Cost Estimate of Legislation

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 13, 1996.
Hon. Ted Stevens,
Chairman, Committee on Governmental Affairs, U.S. Senate, Washington, 
        DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1130, the Federal Financial Management Improvement 
Act of 1996, as ordered reported by the Senate Committee on 
Governmental Affairs on May 16, 1996. CBO estimates that 
enacting S. 1130 would result in no significant cost to the 
Federal government. Because the bill would not affect direct 
spending or receipts, pay-as-you-go procedures would not apply.
    S. 1130 would require the 24 departments and agencies 
covered under the Chief Financial Officers (CFO) Act to comply 
with financial management procedures established by the Office 
of Management and Budget (OMB) under a program conducted 
jointly by OMB, the Treasury, and the General Accounting 
Office. The bill also would require the same departments and 
agencies to comply with accounting standards adopted by the 
Federal Accounting Standards Advisory Board (FASAB) and to use 
the United States Government Standard General Ledger to record 
transactions. For audits conducted after October 1, 1996, the 
bill would require that the auditor report whether an agency 
was in substantial compliance with the bill's provisions, and 
if not, report the names and positions of officers and 
employees responsible for the noncompliance, all facts 
pertaining to the noncompliance, a recommended course of action 
to correct the deficiencies, and a determination of whether 
those found responsible knowingly or willfully failed to comply 
with the law. If OMB's Office of Federal Financial Management 
concurs with an audit's finding of substantial noncompliance, 
the bill would direct it to assist the agency in developing a 
plan and time frame for remedying the deficiencies. If 
necessary, the bill would authorize OMB, subject to the 
availability of appropriations and to the approval of the 
agency head, to transfer up to two percent of available 
appropriations to help implement the plan.
    CBO estimates that S. 1130 would not significantly increase 
costs to the Federal government because the bill would not 
increase the number of agencies covered by the CFO Act, these 
agencies already must comply with the bill's standards for 
financial management, and the bill would not appreciably 
increase the scope of the existing financial audits. To the 
extent that the bill's enforcement mechanisms increase the 
level of compliance with existing Federal financial laws, such 
as those within the Government Management Reform Act and the 
Government Performance and Results Act, S. 1130 could increase 
the quality of Federal financial information and possibly 
result in the better use of financial resources. CBO however, 
has no basis for attributing any budgetary savings to such 
potential effects.
    S. 1130 contains no intergovernmental or private-sector 
mandates as defined by Public Law 104-4, and would not affect 
the budgets of state, local, or tribal governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
Righter.
            Sincerely,
                                         June E. O'Neill, Director.

                   VIII. Text of S. 1130 as Reported

A BILL To provide for the establishment of uniform accounting systems, 
  standards, and reporting systems in the Federal government, and for 
                             other purposes

    Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled,

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 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 of 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.

                      IX. Changes to Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows (existing law to be 
omitted is enclosed in black brackets, new matter is printed in 
italic, existing law to which no change is proposed is shown in 
roman):

                           UNITED STATES CODE

          * * * * * * *

                      TITLE 31--MONEY AND FINANCE

                 CHAPTER 35--ACCOUNTING AND COLLECTION

    Section 3512(a)(2):
                  (D) a summary of reports on internal 
                accounting and administrative control systems 
                submitted to the President and the Congress 
                under the amendments made by the Federal 
                Managers' Financial Integrity Act of 1982 
                (Public Law 97-255); [and]
                  (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
                  [(E)] (F) any other information the Director 
                considers appropriate to fully inform the 
                Congress regarding the financial management of 
                the Federal Government.
          * * * * * * *
    Section 3521(f):
          (1) For each audited financial statement required 
        under subsections (a) and (f) of section 3515 of this 
        title, the person who audits the statement for purpose 
        of subsection (e) of this section shall submit a report 
        on the audit to the head of the agency and the 
        Controller of the Office of Federal Financial 
        Management. A report under this subsection shall be 
        prepared in accordance with generally accepted 
        government auditing standards.

                                
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