Financial Management: Implementation of the Federal Financial Management
Improvement Act of 1996 (Letter Report, 10/01/97, GAO/AIMD-98-1).

Pursuant to a legislative requirement, GAO provided information on: (1)
the requirements of the Federal Financial Management Improvement Act
(FFMIA) of 1996; (2) efforts under way to implement the act; (3)
challenges that agencies face in achieving full compliance with those
requirements; and (4) the status of federal accounting standards.

GAO noted that: (1) it is too early to tell the extent to which the 24
agencies named in the Chief Financial Officers (CFO) Act will be in
compliance with FFMIA requirements for fiscal year 1997 because auditor
reports discussing the results of the fiscal year 1997 financial
statement audits will generally not be available until March 1, 1998,
which is the statutory reporting deadline; (2) the Office of Management
and Budget (OMB) and the CFO agencies have initiated efforts to
implement the act's requirements and improve financial management
systems; (3) although auditors performing financial audits under the CFO
Act are not required to report on FFMIA compliance until March 1, 1998,
prior audit results and agency self-reporting all point to significant
challenges that agencies must meet in fully implementing systems
requirements, accounting standards, and the U.S. Government Standard
General Ledger; (4) regarding the adequacy of accounting standards, the
Federal Accounting Standards Advisory Board (FASAB) has successfully
developed a good initial set of accounting standards; (5) to date, FASAB
has recommended, and OMB and GAO have issued, two statements of
accounting concepts and eight statements of accounting standards
tailored to the federal government's unique characteristics and special
needs; and (6) OMB has integrated these concepts and standards into its
guidance to agencies on the form and content of their financial
statements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-1
     TITLE:  Financial Management: Implementation of the Federal 
             Financial Management Improvement Act of 1996
      DATE:  10/01/97
   SUBJECT:  Financial statements
             Accounting procedures
             Federal agency accounting systems
             Financial records
             Financial management systems
             Standards evaluation
             Financial statement audits
IDENTIFIER:  Joint Financial Management Improvement Program
             U.S. Government Standard General Ledger
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to Congressional Committees

October 1997

FINANCIAL MANAGEMENT -
IMPLEMENTATION OF THE FEDERAL
FINANCIAL MANAGEMENT IMPROVEMENT
ACT OF 1996

GAO/AIMD-98-1

Status of FFMIA

(919130)


Abbreviations
=============================================================== ABBREV

  CFO - Chief Financial Officer
  FASAB - Federal Accounting Standards Advisory Board
  FFMIA - Federal Financial Management Improvement Act
  FFMSR - Federal Financial Management Systems Requirement
  IG - inspector general
  JFMIP - Joint Financial Management Improvement Program
  OMB - Office of Management and Budget
  SFFAC - Statement of Federal Financial Accounting Concepts
  SFFAS - Statement of Federal Financial Accounting Standards
  SGL - U.S.  Government Standard General Ledger

Letter
=============================================================== LETTER


B-277956

October 1, 1997

The Honorable Fred Thompson
Chairman
The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

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

As required by the Federal Financial Management Improvement Act
(FFMIA) of 1996, Public Law 104-208, this letter provides a status
report on efforts to implement the act's requirements and on the
adequacy of accounting standards for the federal government.  The
Congress enacted FFMIA to improve federal accounting practices and
increase the government's ability to provide more reliable financial
information.  Under FFMIA, beginning with the fiscal year ended
September 30, 1997, auditors for each of the 24 major departments and
agencies named in the Chief Financial Officers (CFO) Act of 1990 must
report whether the agencies' financial management systems comply
substantially with federal financial management systems requirements,
applicable federal accounting standards, and the U.  S.  Government
Standard General Ledger (SGL)\1

at the transaction level. 

To aid congressional oversight and keep the Congress advised on the
status of federal financial management, the act provides that the
General Accounting Office (GAO) report on implementation of the act
by October 1 of 1997, and each year thereafter.  Specifically, GAO's
report is to summarize information concerning (1) compliance with the
act's requirements, including whether the CFO agencies' financial
statements have been prepared in accordance with applicable
accounting standards and (2) the adequacy of applicable accounting
standards for the federal government. 

In this, our first FFMIA report, we discuss (1) the act's
requirements, (2) efforts underway to implement the act, (3)
challenges that agencies face in achieving full compliance with those
requirements, and (4) the status of federal accounting standards. 


--------------------
\1 The SGL provides a standard chart of accounts and standardized
transactions that agencies are to use in all their financial systems. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

It is too early to tell the extent to which the 24 agencies named in
the CFO Act will be in compliance with FFMIA requirements for fiscal
year 1997 because auditor reports discussing the results of the
fiscal year 1997 financial statement audits will generally not be
available until March 1, 1998, which is the statutory reporting
deadline.  The Office of Management and Budget (OMB) and the CFO
agencies have initiated efforts to implement the act's requirements
and improve financial management systems.  Although auditors
performing financial audits under the CFO Act are not required to
report on FFMIA compliance until March 1, 1998, prior audit results
and agency self-reporting all point to significant challenges that
agencies must meet in fully implementing systems requirements,
accounting standards, and the SGL. 

Regarding the adequacy of accounting standards, the Federal
Accounting Standards Advisory Board (FASAB) has successfully
developed a good initial set of accounting standards.  To date, FASAB
has recommended, and OMB and GAO have issued, two statements of
accounting concepts and eight statements of accounting standards
tailored to the federal government's unique characteristics and
special needs.  OMB has integrated these concepts and standards in
its guidance to agencies on the form and content of their financial
statements. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The overall purpose of FFMIA is to ensure that agency financial
management systems comply with federal financial management systems
requirements, applicable accounting standards, and the SGL in order
to provide uniform, reliable, and thus more useful financial
information.  With such information, government leaders will be
better positioned to help invest scarce resources, reduce costs,
oversee programs, and hold agency managers accountable for the way
they run government programs. 

The 1990 CFO Act laid the legislative foundation for the federal
government to provide taxpayers, the nation's leaders, and agency
program managers with reliable financial information through audited
financial statements.  Under the CFO Act, as expanded by the
Government Management Reform Act of 1994, 24 major agencies, which
account for 99 percent of federal outlays, are required to annually
prepare organizationwide audited financial statements beginning with
those for fiscal year 1996.  Table 1 lists the 24 CFO agencies and
their reported fiscal year 1996 outlays. 



                                Table 1
                
                 The 24 CFO Agencies' Fiscal Year 1996
                              Net Outlays

                         (Dollars in billions)

                                                              Reported
                                                                fiscal
                                                             year 1996
Agency                                                         outlays
------------------------------------------------------  --------------
Department of Agriculture                                       $ 54.3
Department of Commerce                                             3.7
Department of Defense                                            285.8
Department of Education                                           29.7
Department of Energy                                              16.2
Department of Health and Human Services                          319.8
Department of Housing and Urban Development                       25.5
Department of the Interior                                         6.7
Department of Justice                                             12.0
Department of Labor                                               32.5
Department of State                                                5.0
Department of Transportation                                      38.8
Department of the Treasury                                       364.6
Department of Veterans Affairs                                    36.9
Agency for International Development                               5.3
Environmental Protection Agency                                    6.0
Federal Emergency Management Agency                                3.1
General Services Administration                                    0.7
National Aeronautics and Space Administration                     13.9
National Science Foundation                                        3.0
Nuclear Regulatory Commission                                      0.1
Office of Personnel Management                                    42.9
Small Business Administration                                      0.9
Social Security Administration                                   375.2
======================================================================
Total                                                         $1,682.6
----------------------------------------------------------------------
Source:  Budget of the United States Government, Fiscal Year 1998. 
We did not independently verify this information. 

Financial audits address the reliability of information contained in
financial statements, provide information on the adequacy of systems
and controls used to ensure accurate financial reports and safeguard
assets, and report on agencies' compliance with laws and regulations. 
Building on the CFO Act audits, FFMIA requires, beginning with the
fiscal year ended September 30, 1997, that each of the 24 CFO
agencies' financial statement auditors report on whether the agency's
financial management systems substantially comply with federal
financial management systems requirements, applicable accounting
standards, and the SGL. 


      FINANCIAL MANAGEMENT SYSTEM
      REQUIREMENTS
---------------------------------------------------------- Letter :2.1

The financial management systems policies and standards prescribed
for executive agencies to follow in developing, operating,
evaluating, and reporting on financial management systems are defined
in OMB Circular A-127, "Financial Management Systems," which was
revised in July 1993.  Circular A-127 references the series of
publications entitled Federal Financial Management Systems
Requirements, issued by the Joint Financial Management Improvement
Program (JFMIP),\2 as the primary source of governmentwide
requirements for financial management systems. 

JFMIP initially issued Core Financial System Requirements, the first
document in its Federal Financial Management Systems Requirements
series, in January 1988.  An updated version reflecting changes in
legislation and policies was released in September 1995.  This
document establishes the standard requirements for a core financial
system to support the fundamental financial functions of an agency. 
Framework for Federal Financial Management Systems was published in
January 1995 and describes the basic elements of a model for an
integrated financial management system in the federal government, how
these elements should relate to each other, and specific
considerations in developing and implementing such an integrated
system.  In this regard, FFMIA defines financial management systems
as "financial systems"\3 and the financial portions of "mixed
systems"\4

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 the
system. 

Other documents in the JFMIP series provide requirements for specific
types of systems covering personnel/payroll, travel, seized/forfeited
asset, direct loan, guaranteed loan, and inventory systems.  Table 2
lists the publications in the Federal Financial Management System
Requirements Series and their issue dates. 



                                Table 2
                
                 Publications in the Federal Financial
                 Management System Requirements Series

Federal Financial Management System Requirements (FFMSR)
document                                                  Issue date
--------------------------------------------------------  ------------
FFMSR-0 Framework for Federal Financial Management        January 1995
Systems

FFMSR-1 Core Financial System Requirements                September
                                                          1995

FFMSR-2 Personnel/Payroll System Requirements             May 1990

FFMSR-3 Travel System Requirements                        January 1991

FFMSR-4 Seized/Forfeited Asset System Requirements        March 1993

FFMSR-5 Direct Loan System Requirements                   December
                                                          1993

FFMSR-6 Guaranteed Loan System Requirements               December
                                                          1993

FFMSR-7 Inventory System Requirements                     June 1995
----------------------------------------------------------------------
In addition to these eight documents, JFMIP is developing additional
systems requirements for managerial cost accounting.  This document
was issued as an exposure draft in April 1997. 


--------------------
\2 JFMIP is a cooperative undertaking of OMB, the Department of the
Treasury, the Office of Personnel Management, and GAO working with
operating agencies to improve financial management practices
throughout the government.  The program was initiated in 1948 and was
given statutory authorization in the Budget and Accounting Procedures
Act of 1950 (31 U.S.C.  3511 (d)). 

\3 A financial system includes an information system of one or more
applications that is used for (1) collecting, processing, or
reporting data about financial events; (2) supporting financial
planning or budgeting; (3) accumulating and reporting cost
information; or (4) supporting the preparation of financial
statements. 

\4 A mixed system is an information system that supports both
financial and nonfinancial functions. 


      FEDERAL ACCOUNTING STANDARDS
---------------------------------------------------------- Letter :2.2

Federal accounting standards, which agency CFOs use in preparing
financial statements and in developing financial management systems,
are recommended by FASAB.  In October 1990, the Secretary of the
Treasury, the Director of OMB, and the Comptroller General
established FASAB to recommend a set of generally accepted accounting
standards for the federal government.  FASAB's mission is to
recommend reporting concepts and accounting standards that provide
federal agencies' financial reports with understandable, relevant,
and reliable information about the financial position, activities,
and results of operations of the U.S.  government and its components. 

FASAB recommends accounting standards after considering the financial
and budgetary information needs of the Congress, executive agencies,
other users of federal financial information, and comments from the
public.  The Secretary of the Treasury, the Director of OMB, and the
Comptroller General then decide whether to adopt the recommended
standards.  If they do, the standards are published by OMB and GAO
and become effective.  As discussed further in the section "Status of
Federal Accounting Standards," this process has resulted in issuance
of two statements of accounting concepts and eight statements of
accounting standards.  GAO published these concepts and standards in
FASAB Volume 1, Original Statements, Statements of Federal Financial
Accounting Concepts and Standards, in March 1997. 


      THE U.S.  STANDARD GENERAL
      LEDGER
---------------------------------------------------------- Letter :2.3

In 1984, OMB tasked an interagency group to develop a standard
general ledger chart of accounts for governmentwide use.  The
resulting SGL was established and mandated for use by the Department
of the Treasury in 1986.  Further, OMB Circular A-127, Financial
Management Systems, requires agencies to record financial events
using the SGL at the transaction level. 

The SGL provides a uniform chart of accounts and pro forma
transactions used to standardize federal agencies' financial
information accumulation and processing, enhance financial control,
and support budget and external reporting, including financial
statement preparation.  Use of the SGL improves data stewardship
throughout the government, enabling consistent analysis and reporting
at all levels within the agencies and at the governmentwide level. 
It is published in the Treasury Financial Manual.  The Department of
the Treasury's Financial Management Service is responsible for
maintaining the SGL. 


      FFMIA PROCESS AND REPORTING
      REQUIREMENTS
---------------------------------------------------------- Letter :2.4

As part of a CFO agency's annual audit, the auditor is to report
whether the agency's financial management systems substantially
comply with federal financial management systems requirements,
applicable accounting standards, and the SGL.  If the auditor
determines that an agency's financial management systems do not
substantially comply with these requirements, the act requires that
the audit report (1) identify the entity or organization responsible
for management and oversight of the noncompliant financial management
systems, (2) disclose all facts pertaining to the failure to comply,
including the nature and extent of the noncompliance, the primary
reason or cause of the noncompliance, the entity or organization
responsible for the noncompliance, and any relevant comments from
responsible officers or employees, and (3) include recommended
corrective actions and proposed time frames for implementing such
actions. 

The act assigns to the head of an agency responsibility for
determining, based on a review of the auditor's report and any other
relevant information, whether the agency's financial management
systems comply with the act's requirements.  This determination is to
be made no later than 120 days after the receipt of the auditor's
report, or the last day of the fiscal year following the year covered
by the audit, whichever comes first. 

If the head of an agency determines that the agency does not comply
with the act's requirements, the agency head, in consultation with
the Director of OMB, shall establish a remediation plan that will
identify, develop, and implement solutions for noncompliant systems. 
The remediation plan is to include corrective actions, time frames,
and resources necessary to achieve substantial compliance with the
act's requirements within 3 years of the date the noncompliance
determination is made.  If, in consultation with the Director of OMB,
the agency head determines that the agency's financial management
systems are so deficient that substantial compliance cannot be
reached within 3 years, the remediation plan must specify the most
feasible date by which the agency will achieve compliance and
designate an official responsible for effecting the necessary
corrective actions. 

Under the FFMIA process, the auditor's and the agency head's
determinations of compliance may differ.  In such situations, the
Director of OMB will review the differing determinations and report
on the findings to the appropriate congressional committees. 

The act also contains additional reporting requirements.  OMB is
required to report each year on the act's implementation.  In
addition, each inspector general (IG) of the 24 CFO agencies is
required to report to the Congress, as part of its semiannual report,
instances in which an agency has not met the intermediate target
dates established in its remediation plan and the reasons why. 


   GUIDANCE ISSUED FOR ASSESSING
   COMPLIANCE WITH FFMIA
   REQUIREMENTS
------------------------------------------------------------ Letter :3

Efforts are underway to implement FFMIA and improve the quality of
financial management systems.  OMB recently issued implementation
guidance in a memorandum dated September 9, 1997, for agencies and
auditors to use in assessing compliance with FFMIA.  This is interim
guidance to be used in connection with audits of federal financial
statements for fiscal year 1997. 

OMB's guidance emphasizes implementation of federal financial
management improvements by fully describing in separate sections each
of the requirements under the act, which are (1) federal financial
management systems requirements, (2) applicable federal accounting
standards, and (3) the SGL at the transaction level.  Each section
begins by identifying and discussing the executive branch policy
documents that previously established the requirement.  Information
is also provided on the meaning of substantial compliance and the
types of indicators that should be used in assessing whether an
agency is in substantial compliance.  For example, one indicator of
substantial compliance with financial management systems requirements
would include financial management systems that meet the requirements
of OMB Circular A-127.  Likewise, an indicator of substantial
compliance with financial accounting standards would include an
agency that has no material weaknesses in internal controls that
affect its ability to prepare auditable financial statements and
related disclosures in accordance with federal accounting standards. 

Information is also provided for the auditor to consider in
evaluating and reporting audit results, as well as other reporting
requirements.  The guidance states that the auditor shall use
professional judgment in determining substantial compliance with
FFMIA.  Further, substantial noncompliance in any one or more of the
three requirements of FFMIA would result in substantial noncompliance
with FFMIA.  For example, an agency could have an unqualified\5
opinion on its financial statements indicating that the financial
statements are prepared in accordance with applicable federal
accounting standards, yet have financial management systems that are
not in substantial compliance with financial management systems
requirements.  This situation would preclude the agency from being in
substantial compliance with FFMIA.  Finally, the guidance also
directs auditors to follow the reporting guidance, with respect to
compliance, contained in OMB Bulletin 93-06.\6

We have been discussing with OMB some refinements to this bulletin,
with particular focus on four areas:  (1) clarifying, based on
information provided in OMB's implementation guidance, that the
auditor should perform tests of the reporting entity's compliance
with the requirements of FFMIA, (2) including in the reporting
entity's management representation letter a representation about
whether the reporting entity's financial management systems are in
substantial compliance with FFMIA requirements, (3) clarifying that
the auditor's report on the reporting entity's compliance with
applicable laws and regulations state that the auditor performed
sufficient compliance tests of FFMIA requirements to report whether
the entity's financial management systems comply substantially with
FFMIA requirements, and (4) separately stating in the auditor's
report whether such tests disclosed any instances in which the
reporting entity's financial management systems did not comply
substantially with FFMIA requirements. 

Finally, we have discussed with OMB the requirement in the act, that
if the reporting entity does not comply substantially with FFMIA
requirements, the auditor's report needs to

  -- identify the entity or organization responsible for the
     financial management systems that have been found not to comply
     with FFMIA requirements;

  -- disclose all facts pertaining to the noncompliance, including

the nature and extent of the noncompliance, such as the areas in
which there is substantial but not full compliance;

the primary reason or cause of the noncompliance;

the entity or organization responsible for the noncompliance; and

any relevant comments from reporting entity management or employee
responsible for the noncompliance; and

  -- state recommended remedial actions and the time frames to
     implement such actions. 

We are also exploring other tools to assist the CFO and IG
communities in implementing OMB's interim guidelines.  OMB plans to
review its interim guidelines and replace them during 1998 with
revisions to appropriate OMB policy documents. 

Agencies are also taking steps to improve the quality of their
financial management systems.  According to the CFO Council's and
OMB's Status Report on Financial Management Systems, dated June 1997,
agencies are reporting plans to replace or upgrade operational
applications within the next 5 years.  For applications that are now
under development or in the process of a phased implementation,
reported plans are also in place to fully implement the SGL at the
transaction level and comply with federal financial management system
requirements.  This report indicates that many agencies are also
reporting considering greater use of commercial off-the-shelf
software, cross-servicing, and outsourcing as they seek more
effective ways to improve their financial management systems. 
Successful implementation of these efforts will be instrumental in
achieving future compliance with FFMIA requirements. 


--------------------
\5 An unqualified or "clean" opinion on an agency's financial
statements indicates that the auditor concludes that the principal
statements and accompanying notes are free from material misstatement
and are presented fairly in conformity with established accounting
principles applied on a consistent basis. 

\6 OMB Bulletin 93-06, Audit Requirements for Federal Financial
Statements, establishes requirements and guidance for auditors to
follow in auditing federal financial statements.  OMB Bulletin 93-06
requires an auditor's report at the completion of an audit, comprised
of at least the following three parts:  (1) a report containing an
opinion on the reporting entity's financial statements, (2) a report
on internal control structure, and (3) a report on the reporting
entity's compliance with applicable laws and regulations. 


   CHALLENGES IN IMPLEMENTING THE
   ACT
------------------------------------------------------------ Letter :4

Agencies face significant challenges in achieving substantial
compliance with the act's requirements in the near future.  The
majority of agencies did not receive an unqualified opinion on their
fiscal year 1996 financial statements.  In addition, fiscal year 1996
financial management systems inventory data, self-reported by
agencies and summarized in the CFO Council's and OMB's June 1997
Status Report on Federal Financial Management Systems, reveal that
the majority of agencies' financial systems did not comply with
federal financial management systems requirements or the SGL at the
transaction level prior to FFMIA's effective date. 

An inability to prepare timely and accurate financial statements
suggests that agencies find it difficult to effectively implement
applicable federal accounting standards.  A financial statement audit
provides a meaningful measure of compliance with applicable federal
accounting standards.  An unqualified opinion is one of several
indications that the agency's financial management systems support
the preparation of accurate and reliable financial statements with
minimal manual intervention.  However, for fiscal year 1996, only 6
of the 24 CFO agencies received unqualified opinions on their
organizationwide financial statements.  Further, according to OMB's
Federal Financial Management Status Report & Five-Year Plan, only 13
CFO agencies anticipate being able to obtain unqualified opinions on
their fiscal year 1997 financial statements. 

Our past audit experience has indicated that numerous agencies'
financial management systems do not maintain and generate original
data to readily prepare financial statements.  Consequently, many
agencies have relied on ad hoc efforts and manual adjustments to
prepare financial statements.  Such procedures can be time-consuming,
produce inaccurate results, and delay the issuance of audited
statements.  In addition, agencies' lack of reliable and consistent
financial information on a regular, ongoing basis undermines federal
managers' ability to effectively evaluate the cost and performance of
government programs and activities. 

Also, the current status of federal financial management systems
portends potential problems in agencies complying fully with federal
financial management systems requirements and the SGL as mandated by
the act.  When FFMIA was enacted, federal agencies lacked many of the
basic systems needed to provide uniform and reliable financial
information.  Agencies are still struggling to comply with
governmentwide standards and requirements, although they have
recently exhibited some progress in implementing and maintaining
financial management systems that comply with federal financial
system requirements and the SGL. 

For instance, according to the CFO Council's and OMB's FY 1995 Status
Report on Federal Financial Management Systems, issued in June 1996,
only 29 percent of agencies' financial management systems were
reported to be in compliance with JFMIP federal financial management
system requirements.  In addition, agencies had fully implemented the
SGL in only 40 percent of the operational applications to which they
reported it applied.  The fiscal year 1996 status report, issued in
June 1997, showed some improvement, with 36 percent of agencies'
financial management systems reported as complying with federal
financial management system requirements and full SGL implementation
reported in 45 percent of the applications to which agencies reported
it applied.  However, these statistics indicate that the majority of
agencies' financial management systems still lacked compliance with
financial management systems requirements and full SGL implementation
in fiscal year 1996. 


   STATUS OF FEDERAL ACCOUNTING
   STANDARDS
------------------------------------------------------------ Letter :5

Using a due process and consensus building approach, FASAB has
successfully provided the federal government with an initial set of
accounting standards.  To date, FASAB has recommended, and OMB and
GAO have issued, two statements of accounting concepts\7 and eight
statements of accounting standards with various effective dates
ranging from fiscal year 1994 through fiscal year 1998.  These
concepts and standards, which are listed in table 3, underpin OMB's
guidance to agencies on the form and content of their financial
statements. 



                                Table 3
                
                    Statements of Federal Financial
                    Accounting Concepts (SFFAC) and
                 Standards (SFFAS) and Their Effective
                                 Dates

----------------------------------------------------------  ----------
Concepts

SFFAC No. 1 Objectives of Federal Financial Reporting
----------------------------------------------------------------------

SFFAC No. 2 Entity and Display
----------------------------------------------------------------------
                                                             Effective
 Standards                                                  for fiscal
                                                                  year
SFFAS No. 1 Accounting for Selected Assets and Liabilities        1994
SFFAS No. 2 Accounting for Direct Loans and Loan                  1994
 Guarantees
SFFAS No. 3 Accounting for Inventory and Related Property         1994
SFFAS No. 4 Managerial Cost Accounting Concepts and             1997\a
 Standards
SFFAS No. 5 Accounting for Liabilities of the Federal             1997
 Government
SFFAS No. 6 Accounting for Property, Plant, and Equipment         1998
SFFAS No. 7 Accounting for Revenue and Other Financing            1998
 Sources
SFFAS No. 8 Supplementary Stewardship Reporting                   1998
----------------------------------------------------------------------
\a FASAB has recommended to OMB, the Department of the Treasury, and
GAO that this statement be deferred until 1998. 

In addition to the two concepts and eight standards, FASAB is working
on standards relating to management's discussion and analysis of
federal financial statements, social insurance, the cost of capital,
natural resources, and computer software costs. 

The objectives of federal financial reporting are to provide users
with information about budgetary integrity, operating performance,
stewardship, and systems and controls.  With these as the objectives
of federal financial reporting, the federal government can better
develop new reporting models that bring together program performance
information with audited financial information and provide
congressional and other decisionmakers with a more complete picture
of the results, operational performance, and the costs of agencies'
operations. 


--------------------
\7 Effective dates do not apply to Statements of Federal Financial
Accounting Concepts. 


---------------------------------------------------------- Letter :5.1

FFMIA is intended to improve federal accounting practices and
increase the government's ability to provide credible and reliable
financial information.  Such information is important in providing a
foundation for formulating budgets, managing government program
operations, and making difficult policy choices.  Efforts are
underway both in assisting agencies in implementing the act's
requirements and to assist auditors in measuring compliance with the
act's requirements.  However, long-standing problems with agencies'
financial management systems suggests that agencies will have
difficulty, at least in the short term, achieving compliance with the
act's requirements.  Successful implementation of the act and
resulting financial management improvements depend on the united
effort of all organizations involved, including agency CFOs, IGs,
OMB, the Department of the Treasury, and GAO. 

In performing our work, we evaluated OMB's implementation guidance
for FFMIA.  In addition, we reviewed the CFO Council's and OMB's June
1997 and 1996 Status Report on Federal Financial Management Systems
and OMB's June 1997 Federal Financial Management Status Report &
Five-Year Plan.  We did not verify or test the reliability of the
data in these reports.  Further, we reviewed fiscal year 1996 audit
results for the 24 CFO agencies and applicable federal accounting
standards.  We conducted our work from July through September 1997 at
GAO headquarters in Washington, D.C.  in accordance with generally
accepted government auditing standards.  We provided a draft of this
report to OMB and Treasury and they generally concurred with its
contents.  We have incorporated their comments as appropriate. 

We are sending copies of this letter to the Chairmen and Ranking
Minority Members of the Subcommittee on Oversight of Government
Management, Restructuring, and the District of Columbia, Senate
Committee on Governmental Affairs; the Subcommittee on Government
Management, Information, and Technology, House Committee on
Government Reform and Oversight; other interested congressional
committees; the Director, Office of Management and Budget; the
Secretary of the Treasury; heads of the 24 CFO agencies; agency CFOs
and IGs; and other interested parties.  We will also make copies
available to others upon request. 

This letter was prepared under the direction of Gloria L.  Jarmon,
Director, Civil Audits/Health and Human Services, who may be reached
at (202) 512-4476 if you or your staffs have any questions.  Major
contributors to this letter are listed in appendix I. 

James F.  Hinchman
Acting Comptroller General


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Deborah A.  Taylor, Assistant Director
Maria Cruz, Senior Audit Manager
Anastasia Kaluzienski, Audit Manager

*** End of document. ***