Centers for Disease Control and Prevention: Independent Accountants
Identify Financial Management Weaknesses (Letter Report, 11/15/2000,
GAO/GAO-01-40).
This report documents GAO's concurrence with the findings of
PricewaterhouseCoopers' (PwC) report on the Center for Disease Control
and Prevention's (CDC) financial management operations. To effectively
monitor and evaluate PwC's work, GAO reviewed PwC's methodology for
conducting its work, its collection techniques, resulting analysis, and
the draft and final reports. Overall, PwC found significant weaknesses
in CDC's financial management procedures, operations, systems and staff.
PwC stated that CDC's financial management capabilities have not kept
pace with its expanding mission and funding growth. GAO noted that PwC's
report provided CDC with both a framework and critical steps for
beginning a long-term upgrading effort, and CDC should use this report
as a guide.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GAO-01-40
TITLE: Centers for Disease Control and Prevention: Independent
Accountants Identify Financial Management Weaknesses
DATE: 11/15/2000
SUBJECT: Financial management
Internal controls
Reporting requirements
Private sector practices
Federal agency accounting systems
Accounting procedures
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GAO-01-40
A
Report to Congressional Requesters
November 2000 CENTERS FOR DISEASE CONTROL AND PREVENTION
Independent Accountants Identify Financial Management Weaknesses
GAO- 01- 40
Lett er
November 15, 2000 The Honorable Arlen Specter Chairman The Honorable Tom
Harkin Ranking Minority Member Subcommittee on Labor, Health
and Human Services and Education Committee on Appropriations United States
Senate
The Honorable Pete Domenici United States Senate
The Honorable Jeff Bingaman United States Senate On October 12, 2000,
PricewaterhouseCoopers (PwC), an independent accounting firm, issued its
report on the Centers for Disease Control and
Prevention's (CDC) financial management 1 operations. You asked us to
monitor and report on that effort. This report documents our concurrence
with the report's findings, conclusions, and recommendations and provides
our analysis regarding financial management deficiencies at CDC. In 1999,
the Department of Health and Human Services' Office of Inspector General
reported that a component of the department, CDC, had redirected funds
intended for the Chronic Fatigue Syndrome to other programs during fiscal
years 1995 through 1998. Additional reports alleged that hantavirus
funds had also been redirected. CDC has begun to scrutinize its financial
management operations and has committed to Congress to take a series of
corrective actions. These actions include (1) contracting with an outside
1 In its report, PwC uses the term “fiscal management” to
encompass budgeting, accounting, financing, and reporting functions,
whereas, it uses the term “financial management” to refer solely
to accounting and financing activities. GAO, CDC, and other federal agencies
typically use the term “financial management” to encompass the
same elements for which PwC uses “fiscal management”- budgeting,
accounting, finance, and reporting. Therefore, throughout this report, we
use the term “financial management” when PwC used the term
“fiscal management” in its report.
firm to help CDC improve its system to allocate overhead costs, (2) working
with a wide range of organizations, including congressional committees, to
improve CDC's budget presentation to the Congress,
(3) shortening the time for making tentative budget ceilings available to
CDC managers, (4) increasing the number of accountants in its financial
management organization, and (5) an external review of the agency's
financial management practices. To complete the external review of its
financial management practices, CDC contracted with PwC. Specifically, CDC
asked PwC to examine its financial management processes, systems, and human
capital management. This work included a review of CDC's budget allocation
and budget execution processes, the skill levels and experience of staff
involved in financial management activities, and related manuals. CDC also
asked PwC to benchmark CDC's financial management practices against those of
other federal agencies' and private sector organizations' best practices.
Results in Brief Overall, PwC found that CDC's financial management
capabilities have not kept pace with its expanding mission and funding
growth. PwC found significant weaknesses in CDC's financial management
procedures, operations, systems, and staff. Collectively, these problems
illustrate that CDC's financial management practices are not working well.
According to
PwC, financial management has been a distant second priority in relation to
CDC's other functions. PwC makes numerous recommendations to correct these
deficiencies and to build a sound financial management
structure at CDC. We concur with both PwC's conclusions and recommendations.
Implementing PwC's recommendations will require a long- term commitment and
years of sustained effort throughout CDC. The problems PwC discusses in its
report are not limited to CDC's Financial Management Office (FMO).
Correction of these deficiencies will require CDC to create plans for
implementing and to subsequently follow through on a comprehensive financial
management improvement strategy. An
implementation strategy is particularly important because of the complexity
of CDC's operations and the extent of its recurring financial management
weaknesses and problems. PwC has provided CDC a framework for creating its
improvement plan, to which CDC can add additional details and milestones.
The key to CDC's success is (1) increasing the visibility of financial
management by making it an agencywide priority and (2) increasing the
accounting expertise of CDC's financial management leadership and staff.
Such actions will improve chances that CDC will stay the course in
implementing PwC's recommendations so that financial management will become
a valued partner in enhancing CDC's public health missions. We are
recommending that CDC (1) implement a comprehensive financial management
improvement plan and (2) implement changes to elevate financial management's
visibility and improve accounting expertise.
In commenting on a draft of this report, the Director of CDC stated that
overall, CDC agreed with PwC's findings and recommendations and our
concurrence with those findings and recommendations.
CDC's Mission and CDC is the lead agency for promoting health and quality of
life by working Organization
to develop technology and innovations for preventing and controlling
infectious and chronic diseases, injuries, workplace hazards, and
disabilities. Its mission puts CDC at the forefront of our nation's efforts
to improve the health and well being of the American public and covers a
wide array of diseases, viruses, organisms, injuries, behaviors, and other
public health risks. To accomplish its mission, CDC is organized into
centers, institutes, and
offices (referred to in this report as “centers”) with widely
diverse mandates and scopes of work as CDC's organization chart in figure 1
illustrates.
Figure 1: CDC Organization Chart
Office of the Director Director Deputy Director for Program Management (CFO)
Associate Director for Management and Operations Associate Director for
Program Services
Director, Financial Management Office
Deputy Director for Policy and Legislation Associate Directors
Deputy Director for Science and Public Health Associate Directors
Centers, Institutes, Offices (centers)
Centers Institute
Progam Offices Chronic Disease Prevention
and Health Promotion Occupational Safety and Health
Epidemiology Environmental Health
National Immunization Health Statistics
Public Health Practice HIV, STD, and TB Prevention Infectious Disease Injury
Prevention and Control
Source: CDC.
Historically, the centers and their divisions have operated independently
and have been given latitude in managing both their program and financial
operations. The centers fund numerous public health projects undertaken by
both domestic and international public health and community
organizations. CDC's mission and funding have expanded rapidly in the last
decade. Commensurate with this growth and its mission and worldwide
activities, CDC's budget has grown from $1. 1 billion in fiscal year 1990 to
over $3. 7 billion in fiscal year 2000. CDC's annual budget has grown to 19
activities and over 130 subactivities. Responsibility for using budget
authority for some of them has been shared by more than one center or
division, which complicates the tracking of CDC's budget allocations and the
subsequent use of appropriated funds as well as establishing accountability.
Scope and To effectively monitor and evaluate PwC's work, we reviewed its
Methodology
methodology for conducting its work, its data collection techniques,
resulting analysis, and the draft and final reports. PwC used six primary
methods to complete its review, including interviews, facilitated group
sessions, a risk culture survey, review of selected CDC documentation,
benchmarking, and walk- throughs of system processes. To obtain assurance
about PwC's methodology, we reviewed and
commented on its questionnaire used to interview employees; its questions
and implementation methodology for a survey designed to assess the level of
risk related to financial management practices at CDC- that is, a risk
culture survey; and its objectives, agenda, and techniques used for the
facilitated group sessions. The facilitated group sessions were a series of
discussions among CDC staff that were led by a PwC representative who
recorded participants' responses to questions and shared the results with
the group for further discussion. We also reviewed PwC's approach for
performing the benchmarking effort. To gain assurance about PwC's data
collection efforts, we attended approximately 20 percent of its interviews
with CDC personnel and reviewed PwC's interview notes. We also attended
interviews with congressional staff and Department of Health and Human
Services officials. We reviewed the risk culture survey, facilitated group
session, and
benchmarking results, as well as documentation of CDC's financial management
processes and systems. We also attended PwC's status meetings with CDC. To
obtain comfort with PwC's analysis, we compared our preliminary conclusions
with its findings and recommendations. We also compared the findings,
conclusions, and recommendations in PwC's draft and final report. We
performed our work from May through September 2000, at CDC
headquarters in Atlanta, Georgia; at its remote location in Fort Collins,
Colorado; at PwC's Atlanta office; and at congressional offices in
Washington, D. C. We conducted our work in accordance with generally
accepted government auditing standards. We requested comments from the
Director of CDC or his designee on a draft of this report. The Director
provided us with written comments, which are discussed in the “Agency
Comments and Our Evaluation” section, and reprinted in appendix I.
PwC's Findings, Overall, PwC found that CDC's financial management
processes, Conclusions, and
procedures, systems, and capabilities have not kept pace with its expanding
mission and funding growth. PwC found significant weaknesses Recommendations
in CDC's procedures, operations, systems, and staff skills sets. PwC also
found that CDC's problems have accumulated over several years, stating
that financial management appears to be suffering from neglect and is a
distant second priority to CDC's other functions. PwC also reports that CDC
has begun to correct some of its weaknesses. To describe the
conditions at CDC, PwC grouped its findings into seven categories.
Financial Management Culture: PwC's report states that “science rules
in CDC's culture.” While the business of CDC is indeed science, this
maxim has led to a culture that has not recognized the value of financial
management. Specifically, PwC notes that CDC could benefit from recognizing
the contribution that sound financial management operations
can make in supporting CDC's scientific mission. As evidence of CDC's
current culture, PwC reports that few center directors or associate
directors for management and operations have financial management
backgrounds or substantive financial management experience. Generally, the
center associate directors are responsible for financial management activity
at the center level. PwC also reports that center- level funding decisions
have traditionally favored scientific over administrative positions to the
detriment of CDC's overall financial management capabilities. PwC
notes that although many commercial enterprises have come to view weak
financial management and inaccurate financial reporting as one of their
biggest risks, CDC's culture has not traditionally placed a high value on
financial management. PwC reports that CDC should elevate the value of
financial management by making it an agencywide priority. To that end, PwC
recommends that the CDC director continue his recent efforts to set a clear
tone at the top by announcing that CDC will develop an agencywide financial
management excellence initiative. According to PwC, this initiative should
be designed to move from interim corrective action measures to a
comprehensive, longterm improvement plan for all aspects of financial
management: process, systems, and people. Because financial management
operations are not
confined to FMO, but are conducted in every center, PwC recommends that this
initiative include incorporating a core set of financial management
principles and responsibilities into the mission statement for FMO and
financial management activities into the mission statement for other parts
of the agency. PwC also recommends creating an agencywide financial
management improvement plan with the participation of managers from across
CDC. PwC notes that implementing many of its recommendations will require a
significant commitment of resources, which requires
cooperation between CDC management and its constituents.
Financial Management Leadership: At the time PwC began its review, CDC had
begun interim corrective actions for some of its problems, and PwC found
that CDC's senior leadership had begun to develop a sense of accountability
and urgency in improving financial management practices.
However, PwC also found that senior CDC officials in financial management
leadership positions do not have extensive accounting expertise, nor do they
have professional or technical accounting credentials. Also, PwC reports
that FMO staff members are generally not viewed by the centers as having
expertise in financial management or as
having an internal customer focus. PwC concluded that CDC would have
difficulty moving toward excellence in accounting practices without an
experienced accounting professional in a leadership position who is vested
with the requisite authority and resources to implement the recommendations
in PwC's report. To strengthen financial management leadership, PwC
recommends that CDC make organizational changes to achieve an optimal
financial management organizational structure. This restructuring should
enhance the agency's leadership and expertise in accounting. PwC emphasized
that any organizational realignment must include the appointment of a
champion for the Financial Management Excellence initiative- a person with
accounting experience and credentials.
PwC reports that CDC's decisions about reorganizing and strengthening its
financial management leadership will profoundly effect the success or
failure of actions taken to implement PwC's other recommendations. PwC notes
that CDC's decisions, therefore, must achieve three goals. First, CDC must
be able to sustain improvement in its financial management leadership over
the long run- beyond the time frame of the PwCrecommended improvement
initiative. Second, CDC must enhance its accounting and financial management
credibility with both its internal and external stakeholders. To assist in
this process, PwC recommends that CDC establish an internal customer
satisfaction measurement process.
Third, CDC must select a champion for the improvement initiative who is an
experienced accounting professional and vest that person with the authority
and accountability necessary to succeed.
Staff Competency Levels: PwC reports that financial management staff and
competency levels should be strengthened. PwC found four conditions that
have led to weaknesses in staff competencies. First, the current appraisal
system is not providing the financial management- related
feedback necessary to manage performance effectively. Second, the current
financial management position structure is inconsistent across the agency.
Current pay grades do not accurately reflect job complexity and workload
volume, which is inhibiting CDC's ability to attract and retain financial
management staff. Third, current training and knowledge sharing is only
marginally effective. Training content focuses on theory rather than
practical application, and many of the available training courses are not
taken. Fourth, CDC has no structured career path in financial management
positions. Where career tracks are defined, they are not often followed
because of constraints, such as CDC's administrative- averse culture, grade
limitations, and lack of incentive. PwC reports that, collectively, these
conditions have led to deficiencies in financial management competency and
an insufficient number of qualified staff and are adversely affecting
operational effectiveness.
To build financial excellence into the agency at large, PwC recommends that
CDC establish an integrated financial management workforce development
program, including financial management certification. PwC provides CDC
specific recommendations to address each of the conditions PwC describes.
Its recommendations include designation of a financial management workforce
resource and professional development manager. This person could work with
CDC's human resources group to develop
training and to redesign CDC's position descriptions, grade structure, and
performance appraisals to more accurately reflect CDC's current needs.
Processes and Practices: PwC concluded that CDC's current financial
management processes could benefit from greater rigor and consistency. PwC
reported that (1) procedural guidance and direction from FMO to the centers
is not adequate, (2) fragmented and incompatible financial management
systems are more damaging because of internal control weaknesses, and (3)
the ad hoc manner in which CDC's common account structure has evolved has
resulted in a chart of accounts that is inconsistent in both content and
use. PwC noted that CDC's philosophy of providing maximum flexibility to the
centers on financial management policy issues has led to a lack of practical
“how to” instructions in some
centers. For example, some centers have well- developed processes for budget
projections and accounting reconciliations while others do not. Inadequate
procedural guidance and insufficient understanding has turned
what was intended to be flexibility into continued misunderstandings and
requests for more guidance.
PwC noted that the centers need more guidance on financial management
procedures and recommends that CDC create a plan to develop and communicate
practical guidance in financial management processes and
systems. PwC notes that this plan should specify modules to develop and
disseminate in the immediate, short, and long term. PwC also recommends that
CDC analyze and evaluate the entire common account structure in light of
current and future information needs.
Information and Communication Gaps: PwC reported that numerous gaps in
communicating financial management information exist throughout the
organization and between FMO and the centers. PwC concluded that
improvements in information flow and communication could significantly
improve management effectiveness. CDC staff reported that the most
significant financial management issue causing them frustration related to
the untimely notification of final budget ceilings to the centers,
divisions, and branches. CDC staff reported that they sometimes do not
receive final budget ceilings until April or later, thus limiting their
ability to effectively manage and obligate funds. PwC found that FMO needed
to provide timely and periodic updates about financial management activity
on procedures such as changes in the common account structure. PwC also
found that in some instances center- level management rather than FMO was
causing bottlenecks in communication to the divisions and branches about
such
things as congressional intent and changes in budget ceilings. PwC
recommends that CDC establish fixed time frames for final budget ceiling
notifications to all levels of CDC following receipt of its appropriation.
PwC also recommends establishing a knowledge management and redesign plan
for financial management processes. According to PwC, this plan should
include (1) commitments to communicate important financial management
information promptly and (2) a strategy for developing and publicizing a
network of expert resources for key financial management areas that staff
performing financial management tasks can go to for advice and practical
“how to” instruction.
Financial Management Information Systems: PwC reports that systems
supporting financial management must be understood better, used more fully,
and applied more consistently. Currently, system capabilities are fragmented
with no one system capable of satisfying all users' needs. The overriding
sentiment among CDC staff was one of “Which system should I
use for what tasks?” followed by “Show me how to use it.”
Because systems are fragmented, inconsistencies in output occur that lead to
a lack of data integrity. PwC found that system problems exist because there
is no central financial management systems owner, nor is there a network of
applications subject matter experts to offer users practical advice and
guidance. PwC supports CDC's efforts to move toward replacing its multiple
systems with one integrated accounting system that meets its unique needs.
PwC recommends that as CDC moves to an integrated system, it ensure that the
system is user friendly and highly functional and that CDC establish a
feedback process for users to report system capability shortfalls. In the
meantime, PwC recommends development of an interim improvement plan to
foster greater consistency, efficiency, and internal control in existing
systems' applications. This effort would include designating a systems owner
to maintain and control all systems' documentation, standard operating
procedures, upgrades, user training documentation, and to be a repository of
all user issues. The systems manager would also work with FMO to design and
implement a financial management system expert user network that staff could
go to for assistance.
Budget Structure and Operating Environment: PwC reports that CDC's budget
structure and operating environment are very complex. PwC notes that the
normal complexity of CDC's programs has been compounded over the years by
many factors, some of which were selfcreated. For example, the number of
budget activity and subactivity line items has expanded over the years, in
part, to represent program activities
in a greater level of detail to appeal to CDC's constituents and partners.
CDC has over 130 subactivities displayed in its annual budget justification.
PwC found that the accompanying accounting system has had nearly 14, 000
common account numbers, further complicating financial management. PwC
further states that as the agency struggles to manage the structure that has
evolved, inadvertent mistakes and omissions might occur that could be
misinterpreted by constituents as willful neglect. PwC also states that this
expansion has inadvertently reduced the amount of flexibility in funding
program activities necessary to respond to changes in public health needs.
PwC recommends that CDC continue its efforts to simplify and streamline its
budget structure and presentation. PwC also recommends that CDC
expand its limited review of a few common account numbers into a review of
the entire structure.
GAO Analysis We concur with PwC's findings, conclusions, and
recommendations. Collectively, the problems PwC identified describe a
financial management
operation that does not work well. They also depict an agency that has not
developed the characteristics of organizations with world- class financial
management operations that we discuss in our Executive Guide. 2 Those
organizations (1) made financial management an entitywide priority through
clear, strong executive leadership, (2) redirected financial management's
role toward meeting the organization's mission and goals, (3) developed a
customer- focused financial operation, incorporating both
people and systems, that provided useful information to management, and (4)
built a financial management team that had the right mix of skills and
competencies to deliver results.
Achieving world class status in financial management at CDC will require a
sustained long- term effort. The key is leadership. CDC's director and CFO
must continue their efforts to (1) change CDC's culture to one that values
the contributions financial management can make to achieving CDC's
public health missions and (2) improve financial operations and their
associated services. These objectives are interrelated. To achieve them, CDC
must (1) place well- qualified individuals with experience and expertise in
financial management, especially accounting, in senior financial management
positions to effectively lead and implement change throughout the agency and
(2) build a financial management team that has the right mix of skills to
deliver results.
To accomplish the first objective of changing CDC's culture, PwC recommended
that CDC elevate the status of financial management to a key priority for
the agency. Specifically, PwC recommended that the CDC director (1) begin a
financial management excellence initiative to improve CDC's overall
financial management capabilities and services and (2) make organizational
changes to achieve an optimal financial management organizational structure
that enhances financial management's status within CDC and improves
financial management leadership's technical ability and credibility
throughout CDC. These recommendations are critical for ensuring CDC's
success in permanently improving its financial management operations and
changing its culture to value financial
management. Cultural change is a difficult, long- term process. A crucial 2
Executive Guide: Creating Value Through World- Class Financial Management
(GAO/ AIMD- 00- 134, April 2000).
element in achieving long- term success is having executive leadership that
sets and maintains the appropriate tone at the top. This process has begun
at CDC, but needs to be enhanced and carried through. The CDC Director's
personal leadership along with that of the Chief Financial Officer (CFO) in
setting the tone should be visible and unambiguous. A financial management
excellence initiative, as PwC recommends, with specific
objectives and goals can become a cornerstone in setting the right tone.
Realigning and restructuring CDC's financial management leadership should
become another cornerstone. This restructuring should emphasize the
importance of financial management by increasing its visibility and by
improving the accounting expertise and experience of senior FMO officials
and by enhancing financial management's status within CDC. As PwC reports,
CDC's decisions about organizational realignment to strengthen its financial
management leadership will have a profound effect on the
success or failure of actions taken to implement PwC's other
recommendations. PwC also reports that any realignment must (1) position CDC
to be able to sustain improvement in its financial management
leadership over the long run, (2) enhance CDC's accounting and financial
management credibility with both its internal and external stakeholders, and
(3) include a financial management improvement champion who is an
experienced accounting professional and who is vested with the authority and
accountability necessary to succeed.
Integral to achieving these goals is increasing CDC's focus on financial
management. CDC's CFO, who reports directly to the CDC Director as the
Deputy Director for Program Management, has significant responsibilities
other than financial management. Therefore, until recently, the leadership
for financial management has been provided primarily by the FMO director,
who functions like a Deputy CFO. However, the FMO director also has
significant responsibilities beyond his financial management role. He also
has responsibility for legislative affairs. With these competing priorities,
the FMO Director has focused much of his attention on legislative affairs.
As a
result, insufficient attention was provided to budgeting and accounting
activities. This appears to have contributed, in part, to the financial
management weaknesses PwC identified.
In commenting previously on implementation of the CFO Act of 1990 (Public
Law 101- 576), especially in the early years of the act, we expressed
concern that some agencies had simply added the CFO responsibilities to
existing positions that encompass other broad and significant management and
administration responsibilities. We noted that this arrangement was
basically the way financial management responsibilities were structured
before passage of the CFO Act, and that approach did not work. We further
noted that its continued use, in cases in which the CFO had a large number
of responsibilities beyond financial management, could dilute the CFO's
role, rather than fostering needed urgency and undivided attention on
financial management issues. Over the years, we have seen dramatic changes
to address this issue across government.
In addition to realigning and restructuring CDC's financial management
leadership, increasing the leadership's expertise in accounting is also
integral to achieving the goals set out above. The lack of accounting
expertise among CDC's senior managers may have also led to insufficient
attention to critical financial management issues and activities. Neither
the CFO nor the FMO Director has formal training or extensive expertise in
accounting. Without such expertise, senior managers may not have the
perspective necessary to provide the type of leadership needed to achieve a
world- class financial management operation. As PwC observes, CDC will have
difficulty moving toward excellence in financial accounting practices
without a thoroughly experienced accounting professional in a leadership
position who is vested with the requisite authority and resources to
implement the recommendations in PwC's report. As PwC notes, any
restructuring of CDC's financial management should enhance the agency's
leadership and expertise in accounting. PwC also emphasized that any
organizational realignment must include the appointment of a champion for
the financial management excellence initiative who has financial management
experience and credentials. It is essential that this capacity be acquired
at the CFO and Deputy CFO levels.
Filling senior financial management positions with experienced accounting
professionals would align CDC's financial management with the concepts
envisioned in the CFO Act and associated Office of Management and Budget
(OMB) guidelines. 3 Specifically, the CFO Act calls for the CFO to have,
among other things, significant general managerial or other practical
involvement relating to financial management. In addition, OMB's guidelines
call for the CFO to have direct knowledge of and experience with budget
execution concepts, financial accounting and reporting concepts and issues,
and internal management control processes. The CFO
3 Memorandum for the Heads of Executive Branch Department and Agencies
Subject to the Chief Financial Officers Act of 1990 from the Director,
Office of Management and Budget, Executive Office of the President, February
9, 1993.
Act and OMB's guidelines call for the Deputy CFO to have demonstrated
ability and experience in accounting, budget execution, financial and
management analysis, and systems development. OMB's guidelines further call
for the Deputy CFO to have in- depth experience in financial accounting
and reporting concepts and principles as well as demonstrated ability to
effectively implement financial management policies in complex
organizations. CDC's current CFO structure does not have the extensive
accounting experience envisioned by the act and its implementing guidelines.
Achieving the appropriate level of expertise at senior financial management
levels will require CDC to recruit executives with extensive accounting
experience, which may be time- consuming for CDC and may not be achieved in
the short term. However, beginning the process of cultural change, improving
financial management services, and enhancing
financial management leadership must begin now even if it means appointing
someone on an interim basis to carry out these responsibilities. If CDC
management chooses such an interim measure, it must keep focused on the
ultimate goal of formally realigning CDC's financial management to increase
both its visibility and its accounting and financial
management expertise. Only permanent change can ensure long- term success in
improving CDC's financial operations and services as well as changing its
culture.
Also important to implementing cultural change is establishing
accountability and reporting structures for financial management functions
performed in the centers and their divisions and branches. PwC recommends
realigning the reporting structure so that personnel in the centers report
to the CFO for the financial management functions they perform. PwC's
recommendation is consistent with the requirements of the CFO Act and the
findings of our Executive Guide. The CFO Act requires
that the CFO have cognizance of and responsibility for all financial
matters, including all financial management activities relating to programs
and operations. Our Executive Guide also noted that world- class
organizations' financial managers have line responsibility over financial
management operations throughout the organization for all aspects of
financial reporting. With such changes at CDC, both center management and
the CFO can share responsibility, accountability, and authority over the
staff performing financial management activities in the centers, thus
ensuring that CDC's financial management leadership can influence change
throughout CDC.
To accomplish the second objective of improving financial operations and
their associated services, CDC's implementation of PwC's recommendations to
strengthen the skill sets of CDC staff performing financial management
functions both within the formal financial management structure and within
the centers are particularly important. These recommendations comport with
our Executive Guide's finding that world- class organizations place a
priority on building a financial management team that delivers results in
terms of providing line managers
with meaningful information for decision- making. PwC's report makes
specific recommendations for improving staff expertise. To assist in
accomplishing the second objective, CDC must also improve financial
management systems by integrating the operation of systems and managers'
needs. PwC's report describes a financial management information system
environment that does not work for the users and does not easily produce
useful information for managers. In our Executive Guide, we point out that
organizations with world class financial management have developed systems
that support the partnership between finance and operations. One key
characteristic of these organizations is that their automated systems are
designed and employed to not only
accurately measure the costs of activities, but to also provide line
managers with timely, accurate financial and nonfinancial information on the
quality and efficiency of business processes and performance. PwC
recommends, among other things, that as CDC moves to an integrated system,
it ensure that the system be user friendly and highly functional and that
CDC establish a feedback process to allow users to report system capability
shortfalls. Implementing PwC's recommendations will move CDC closer to the
goal of integrating its systems with its program needs.
Conclusions The problems and financial management weaknesses PwC discusses
are not confined to FMO- they exist to varying degrees throughout CDC. These
weaknesses did not develop overnight. They are the result of years of
financial management neglect. Until recently, financial management has been
a low priority in relation to other CDC activities and has not been a valued
partner with CDC's program managers. Consequently, correcting its
weaknesses, building a strong financial management operation and sound
financial controls, and changing CDC's culture to value financial management
will require top- level executive leadership and a concerted and consistent
effort for several years. CDC's Director and CFO should be personally
involved in setting the tone and communicating that improving financial
management is a key CDC priority.
CDC's Director can demonstrate the importance of financial management by
realigning CDC's financial management structure to increase the accounting
expertise of the senior managers within the CFO structure and by elevating
the visibility of financial management. Filling key financial management
positions with highly qualified and experienced people with proven track
records can enhance CDC's ability to stay the course in
building its own world- class financial management operation. The
strengthening of financial management operations that can result from the
organizational changes that PwC recommends and the implementation of a
comprehensive improvement plan would be in keeping with the intent of the
CFO Act. One underlying purpose of the act is to transform financial
management into a strong support activity that provides federal managers
information for achieving core agency missions. It would also be in keeping
with our financial management Executive Guide, which emphasizes that
agencies make financial management improvement an agencywide priority in
order to build a foundation of control and accountability and make financial
managers partners with program managers. As CDC invests time,
effort, and resources in improving its financial management, CDC and its
constituents should remain focused on the ultimate objectives: to improve
accountability for public funds and to help program managers achieve their
public health missions.
As CDC engages in the process of upgrading its financial management
operations, it can use PwC's report as a guide. PwC has provided CDC with
both a framework and critical steps for beginning a long- term upgrading
effort. PwC recommends immediate-, short-, and longer- term steps that CDC
needs to undertake. It will be important that CDC incorporate PwC
recommendations into a comprehensive financial management improvement plan
and develop a strategy for implementing it. Such a
comprehensive plan would (1) include short- and long- range plans with
clearly defined objectives and goals, (2) identify specific corrective
actions with corresponding target dates and resources necessary to implement
those actions, and (3) identify offices and staff responsible for
implementing the corrective actions to establish accountability.
Accountability is an important vehicle for increasing the chances of
successful implementation outcomes. Although PwC has provided much content
for a plan, CDC must now fill in the details and begin to expeditiously
implement it.
Recommendations To improve financial operations and to begin changing CDC's
culture to value financial management, we recommend that the CDC Director
take
the following actions: Prepare and expeditiously implement a comprehensive
financial management improvement plan that incorporates the over 60
recommendations in PwC's October 12, 2000, report on its management review
of CDC's financial management practices.
Implement changes to its CFO organization to enhance the skill sets of its
financial management staff and increase the overall visibility of financial
management. In implementing these changes, CDC should ensure that its CFO
executives have expertise and proven track records in their respective
areas, especially in accounting.
Agency Comments and In written comments (reprinted in appendix I) on a draft
of this report, the
Our Evaluation Director of CDC said that CDC concurred overall, with PwC's
findings and
recommendations and our concurrence with those findings and recommendations.
He noted that PwC's report identifies areas where improvements are necessary
for CDC to achieve financial management excellence. He also stated that
PwC's report identifies a number of financial management strengths at CDC.
In addition, the Director said that
our report would be helpful as CDC addresses structural factors that led, in
part, to financial management deficiencies. CDC also provided technical
comments, which we have incorporated as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we will not distribute this report until 30 days from its date. At
that time, we will send copies to Representative John E. Porter, Chairman,
and Representative David R. Obey, Ranking Minority Member, Subcommittee on
Labor, Health and Human Services and Education, House Committee on
Appropriations. We will also send copies to the Honorable Jacob J. Lew,
Director of the Office of Management and Budget; the Honorable Donna
Shalala, Secretary of Health and Human Services; and Dr. Jeffrey P. Koplan,
Director, Centers for Disease Prevention and Control. Copies will be made
available to others upon request.
This report was prepared under the direction of Gloria L. Jarmon, Director,
who may be reached at (202) 512- 4476 or by e- mail at jarmong. aimd@ gao.
gov, if you or your staffs have any questions, or you may contact Debra
Sebastian at (202) 512- 9385 or by e- mail at
sebastiand. aimd@ gao. gov. Ray Bush, Sharon Loftin, Meg Mills, Ruth
Sessions, and Dave Shoemaker were key contributors to this report. Jeffrey
C. Steinhoff Managing Director Financial Management and Assurance
Comments From the Centers for Disease
Appendi x I Control and Prevention
(916359) Lett er
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Appendix I
Appendix I Comments From the Centers for Disease Control and Prevention
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