Grant Financial System Requirements: Checklist for Reviewing	 
Systems Under the Federal Financial Management Improvement Act	 
(03-SEP-01, GAO-01-911G).					 
								 
The Federal Financial Management Improvement Act (FFMIA) of 1996 
requires that agencies implement and maintain financial 	 
management systems that substantially comply with federal	 
financial management systems requirements. JFMIP intends to	 
promote understanding of key financial management systems	 
concepts and requirements, to provide a framework for		 
establishing integrated financial management systems to support  
program and financial managers, and to describe specific	 
requirements of financial management systems. This checklist	 
reflects JFMIP's first functional requirements document issued	 
for grant financial systems to assist (1) agencies in		 
implementing and monitoring agency grant financial systems and	 
(2) managers and auditors in reviewing their grant financial	 
systems to determine if they substantially comply with FFMIA.	 
This checklist is not a requirement in assessing grant financial 
systems. Rather, it is provided as a tool for use by experienced 
staff and is one in a series of documents GAO has issued to	 
assist agencies in improving or maintaining effective operations.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-911G					        
    ACCNO:   A01751						        
    TITLE:   Grant Financial System Requirements: Checklist for       
             Reviewing Systems Under the Federal Financial Management         
             Improvement Act                                                  
     DATE:   09/03/2001 
  SUBJECT:   Cost accounting					 
	     Financial management systems			 
	     Inspectors general 				 
	     Chief financial officers				 
	     Voluntary compliance				 
	     Joint Financial Management Improvement		 
	     Program						 
								 

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GAO-01-911G
     
GRANT FINANCIAL SYSTEM REQUIREMENTS

Checklist for Reviewing Systems Under the Federal Financial Management
Improvement Act

United States General Accounting Office September 2001

OPR: OP GAO Form 515 (Rev. 3/ 99)

GAO

GAO- 01- 911G

GAO- 01- 911G - Grant Financial System Checklist (9/ 01)
______________________________________________________________________________

PREFACE

______________________________________________________________________________
September 2001 The Federal Financial Management Improvement Act (FFMIA) of
1996 requires, among other things, that agencies implement and maintain
financial management systems that substantially comply with federal
financial management systems requirements. These requirements are detailed
in the Federal Financial Management Systems Requirements series issued by
the Joint Financial Management Improvement Program (JFMIP), in Office of
Management and Budget (OMB) Circular A- 127, Financial Management Systems,
and in OMB?s Revised Implementation Guidance for the Federal Financial
Management Improvement Act (FFMIA) of 1996, issued January 4, 2001. JFMIP
intends for the requirements to promote understanding of key financial
management systems concepts and requirements, to provide a framework for
establishing integrated financial management systems to support program and
financial managers, and to describe specific requirements of financial
management systems.

We are issuing this checklist which reflects JFMIP?s first functional
requirements document issued for grant financial systems, Grant Financial
System Requirements

(June 2000) to assist (1) agencies in implementing and monitoring agency
grant financial systems and (2) managers and auditors in reviewing their
grant financial systems to determine if they substantially comply with
FFMIA. This checklist is not required to be used in assessing grant
financial systems. Rather, it is provided as a tool for use by experienced
staff and is one in a series of documents we have issued to assist agencies
in improving or maintaining effective operations. (See the last page of this
document for a list of related products.) This checklist, the JFMIP source
document, and the two previously mentioned OMB documents should be used
concurrently. Those using this tool must apply experienced judgment in its
interpretation and application. They must consider the impact of the
completed checklist on an entire grant financial system and whether the
system, as a whole, substantially complies with requirements.

Additional copies of the checklist can be obtained from the U. S. General
Accounting Office, 700 4th Street NW, Room 1100, Washington, DC 20548, or by
calling (202) 5126000, or TDD (202) 512- 2537. This checklist replaces GAO?s
previously issued exposure draft of the Grant Financial System Requirements
Checklist (GAO- 01- 238G, January 2001) and is available on the Internet on
GAO?s Home Page (www. gao. gov) under ?Other Publications? and the
subheading ?Accounting and Financial Management.? Hard copies of the JFMIP
document also can be obtained from GAO or can be downloaded from the JFMIP
website at JFMIP. gov under ?JFMIP Documents? and the subheading ?System
Requirements.?

Jeffrey C. Steinhoff Managing Director Financial Management and Assurance

Page 2 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) (BLANK)

Page 3 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)
______________________________________________________________________________

CONTENTS

______________________________________________________________________________
Overview 5

Authoritative Guidance 6 How to Use This Checklist 7

Grant Financial System Requirements 9 System Overview 11 Introduction to
Functional Requirements 12 Commitments 13 Decommitments 16 Obligations 18
Payments 21 Cost Accruals 26 Financial Reports 32 Interest Collections 36
Grant Closeout 38 Records Retention 40 General System Requirements 41
Information Technology in the Grants Process 44

Related Products 45

Figure

Figure 1: Agency Systems Architecture 5

Abbreviations

AP accrual process ASAP Automated Standard Application for Payment System
CFDA Catalog of Federal Domestic Assistance

CFO Chief Financial Officer CMIA Cash Management Improvement Act DPPS
Defense Procurement Payment System FASAB Federal Accounting Standards
Advisory Board FCTR federal cash transaction report FFMIA Federal Financial
Management Improvement Act FFMSR Federal Financial Management System
Requirements FMS Financial Management Service FR financial reports FRP
financial report process FSR financial status report HHS Health and Human
Services

Page 4 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) IT
information technology

JFMIP Joint Financial Management Improvement Program NARA National Archives
and Records Administration OMB Office of Management and Budget OPM Office of
Personnel Management PMS Payment Management System SFFAS Statement of
Federal Financial Accounting Standards SGL Standard General Ledger TFM
Treasury Financial Manual

Page 5 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)
______________________________________________________________________________

OVERVIEW
______________________________________________________________________________

The Federal Financial Management Improvement Act (FFMIA) of 1996 requires,
among other things, that agencies implement and maintain financial
management systems that substantially comply with federal financial
management systems requirements. These system requirements are detailed in
the Financial Management Systems Requirements series issued by the Joint
Financial Management Improvement Program (JFMIP) 1 and Office of Management
and Budget (OMB) Circular A- 127, Financial Management Systems. JFMIP
requirements documents describe the federal financial system architecture as
(1) core financial systems, (2) managerial cost accounting, and (3) 13
subsidiary or mixed systems supporting agency operations, not all of which
are applicable to all agencies. 2 Figure 1 is the JFMIP model that
illustrates how these systems interrelate in an agency's overall systems
architecture.

Figure 1: Agency Systems Architecture 1 JFMIP is a joint cooperative
undertaking of the Office of Management and Budget (OMB), the General
Accounting Office, the Department of Treasury, and the Office of Personnel
Management (OPM), working in cooperation with each other and with operating
agencies to improve financial management practices throughout the
government. The program was initiated in 1948 by the Secretary of the
Treasury, the Director of the Bureau of the Budget (now OMB), and the
Comptroller General and was given statutory authorization in the Budget and
Accounting Procedures Act of 1950. The Civil Service Commission, now the
Office of Personnel Management, joined JFMIP in 1966. 2 JFMIP has also
issued the Framework for Federal Financial Management Systems (FFMSR- 0,

January 1995) that defines the framework for establishing and maintaining
financial management systems to support management and deliver programs of
the federal government. GAO published a companion checklist, Framework for
Federal Financial Management System Checklist

(GAO/ AIMD- 98- 21.2.1, May 1998).

Page 6 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) Source:
JFMIP Grant Financial System Requirements (June 2000).

To date, JFMIP has issued 10 of the 15 functional requirements. (See figure
1.) 3 We are issuing this checklist- which reflects JFMIP?s first functional
requirements document issued for grant financial systems, Grant Financial
System Requirements

(June 2000)- to assist (1) agencies in implementing and monitoring their
grant financial systems and (2) managers and auditors in reviewing agency
grant financial systems to determine if they are in substantial compliance
with FFMIA. This checklist is not a requirement. However, it is provided as
a tool for use by experienced staff. This checklist; the JFMIP source
document; OMB Circular A- 127, Financial Management Systems; and OMB?s
Revised Implementation Guidance for the Federal Financial Management
Improvement Act (FFMIA) of 1996, issued January 4, 2001, should be used
concurrently. Staff members who use this tool must apply experienced
judgment in its interpretation and application. They must consider the
impact of the completed checklist on the entire grant financial system and
whether the system, as a whole, substantially complies with requirements.

Authoritative Guidance

OMB Circular A- 127 and OMB?s implementation guidance provide the basis for
assessing compliance with the FFMIA requirements so the agencies can
implement and maintain financial management systems that comply
substantially with federal requirements. The implementation guidance
identifies various criteria that an agency must meet to substantially comply
with these requirements. One set of criteria listed in the OMB guidance is
the JFMIP systems requirements series.

The source of all the questions in this checklist is the JFMIP Grant
Financial System Requirements (JFMIP- SR- 00- 3, June 2000). This JFMIP
document is intended to identify financial system requirements necessary to
support grants programs. It does not intend to identify the full scope of
functional program requirements associated with grants management programs.
It should be noted that the checklist is based on the existing published
JFMIP standards and that changes in laws, regulations, and standards and
practices since the standards were issued are not included in the checklist.

The revised JFMIP document segregates functional requirements into two
general categories- mandatory and value- added. The mandatory requirements
describe what the system must do. They consist of the minimum acceptable
functionality necessary to establish a system and are based on federal laws
and regulations. Mandatory requirements are those against which agency heads
evaluate their systems to determine substantial compliance with system
requirements under FFMIA. These requirements apply to existing systems in
operation and new systems planned or under development.

3 Thus far, the series includes the (1) Core Financial System Requirements,
(2) Inventory System Requirements, (3) Seized Property and Forfeited Assets
System Requirements, (4) Direct Loan System Requirements, (5) Guaranteed
Loan System Requirements, (6) Travel System Requirements, (7) Human
Resources & Payroll Systems Requirements, (8) System Requirements for
Managerial Cost Accounting (9) Grant Financial System Requirements and (10)
Property Management Systems Requirements. In early 1998, JFMIP decided to
initiate projects to update system requirements documents that were not
current with regulations and legislation. JFMIP also planned to initiate
projects to complete the remaining systems requirements.

Page 7 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) The
checklist uses ?( M)? immediately following the question to indicate that
the item is a

mandatory system function. The value- added requirements describe optional
features and may consist of any combination of the following: (1) using
state- of- the- art technology, (2) employing the preferred or best business
practices, or (3) meeting the special management needs of an individual
agency. Agencies should consider value- added features when judging systems
options. The need for these value- added features in agency systems is left
to the discretion of each agency head. The checklist uses ?( V)? immediately
following the question to indicate that the item is value- added and not
mandatory.

How to Use This Checklist

OMB?s 2001 implementation guidance provides chief financial officers (CFO)
and inspectors general with a means for determining whether their agencies?
financial management systems substantially comply with federal financial
management systems requirements. The annual reporting required by 31 U. S.
C. 3512( d) is one means of assisting agencies in the determination of
substantial compliance. Agencies can also use this checklist as a tool to
help determine compliance with federal financial management systems
requirements.

Filling out this checklist will allow agencies to systematically determine
whether specific systems requirements are being met. In determining
substantial compliance, agencies should assess the results of the completed
checklist on the grant financial system requirements taken as a whole.

The checklist contains three columns with the first citing the question. Use
the second column to answer each question ?yes,? ?no,? or ?na.? Use the
third column to explain your answer. A ?yes? answer should indicate that the
agency?s grant financial system provides for the capability described in the
question. For each ?yes? answer, the third column should contain a brief
description of how the grant financial system satisfies that capability and
should also refer to a source that explains or shows the capability.

A ?no? answer indicates that the capability does not exist. For a ?no?
answer, the third column should provide an explanation and, where
applicable, a reference to any related supporting documentation (e. g., the
agency is working on modifying or implementing its grant financial system to
have the capability available in subsequent years; management believes the
capability is not cost effective and will not enhance the grant financial
system?s ability to manage operations). Cost- benefit studies, or other
reasoning, that support a ?no? answer should be identified in the
explanation column. If there are no cost- benefit studies or other support,
a full explanation should be provided.

?No? answers should not be viewed individually or taken out of context.
Rather, ?no?

answers should be assessed as to their impact on the overall grant financial
system and the extent to which they inhibit the entire grant financial
system from meeting substantial compliance.

Certain questions within the checklist may not be applicable to the agency.
Answer such nonapplicable question( s) with ?na? and provide an appropriate
explanation in the third column.

Page 8 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) (BLANK)

Page 9 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)
______________________________________________________________________________

GRANT FINANCIAL SYSTEM REQUIREMENTS

______________________________________________________________________________
The grant financial system requirements document provides an overview of
grant system requirements (there are no checklist questions drawn from pages
7- 8 of the JFMIP source document); an introduction to functional
requirements (there are no checklist questions drawn from pages 9- 12 of the
JFMIP source document); and functional requirements for the eleven functions
described below: (1) commitments, (2) decommitments, (3) obligations, (4)
payments, (5) cost accruals, (6) financial reports, (7) interest
collections, (8) grant closeout, (9) records retention, (10) general system
requirements, and (11) information technology in the grants process.

1. Commitments. A commitment is the administrative reservation of a specific
amount of an agency?s available funds that provides for a later issuance
incurring a grant award and incurring the related obligation. (The checklist
questions for this area are drawn from pages 13- 15 of the JFMIP source
document.)

2. Decommitments. A decommitment is the act of reversing a commitment of
funds previously recorded in an agency?s financial system. (The checklist
questions for this area are drawn from pages 16- 17 of the JFMIP source
document.)

3. Obligations. An obligation occurs when an obligating official makes an
award to an entity on behalf of a federal awarding agency, thereby
obligating that agency to fund a project that relates to a federal grant
program administered by that agency. (The checklist questions for this area
are drawn from pages 18- 20 of the JFMIP source document.)

4. Payments. Funds are paid to grantees as either advances or
reimbursements. (The checklist questions for this area are drawn from pages
21- 24 of the JFMIP source document.)

5. Cost accruals. Accrual accounting is the method of accounting in which an
entity?s financial position and operating results are measured by the flow
of economic resources. Transactions are recorded in the accounting period in
which they occur, or according to whose operations they benefit, regardless
of when the related cash receipts and disbursements take place. (The
checklist questions for this area are drawn from pages 25- 29 of the JFMIP
source document.)

6. Financial reports. Grantees are required to periodically report the
financial results of their grant- supported activities. (The checklist
questions for this area are drawn from pages 30- 32 of the JFMIP source
document.)

7. Interest collections. Interest earned on advances of federal funds must
be handled in accordance with administrative requirements based on the cost
principles established for the grantee organization involved. (The checklist
questions for this area are drawn from page 33 of the JFMIP source
document.)

8. Grant closeout. The grantee?s authority to incur new obligations against
the grant expires at the end of the grant period. The grantee and its
federal awarding agency

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 10 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

must then wind up all grant- related business through a process known as
closeout. (The checklist questions for this area are drawn from page 34 of
the JFMIP source document.)

9. Records retention. Agency systems must maintain, store, and permit ready
retrieval of grant financial data. (The checklist questions for this area
are drawn from page 35 of the JFMIP source document.)

10. General system requirements. The grant financial system, at the standard
and/ or agency level, must be able to accept, process, and report on
transactions with other internal and external systems. (The checklist
questions for this area are drawn from page 36 of the JFMIP source
document.)

11. Information technology in the grants process. This section describes a
framework for introducing information technology (IT) into the external
grants process. (There are no checklist questions drawn from pages 37- 39 of
the JFMIP source document.)

The checklist questions follow the JFMIP source document. It should be noted
that not all questions apply in all situations and, as with the use of any
checklist, professional judgment should be exercised. Using the JFMIP source
document and its ?Appendix B: Glossary/ Dictionary,? which defines terms
used, along with OMB Circular A- 127,

Financial Management Systems, and OMB Revised Implementation Guidance for
the Federal Financial Management Improvement Act (FFMIA) of 1996, issued
January 4, 2001, will help ensure that the user is cognizant of the
background information necessary to fully understand the questions.

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 11 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

System overview Yes/ no/ na Explanation

Note: There are no checklist questions drawn from this section of the JFMIP
source document (pages 7- 8).

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 12 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Introduction to functional requirements Yes/ no/

na Explanation

Note: There are no checklist questions drawn from this section of the JFMIP
source document (pages 9- 12).

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 13 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Commitments Yes/ no/ na Explanation

Commitment process flow

1. Does the system support the following major steps associated with
processing a commitment for agencies with a commitment process?

Decide to fund a grant. Occurs after a proposal application process
(involving application receipt, review, and selection) has been completed.
The steps or procedures that an agency follows before the funding decision
are dependent on the specific requirements established by the agency based
on the nature of the agency?s grant programs.

(V)

Initiate commitment request; input budgetary/ program data into the system.
Examples of financial data elements include the following:

commitment request identifier, requisition date, corresponding proposal
identifier, funding dollar amount, fund code( s)/ appropriation code( s),
accounting code, budget year( s) of funding, name of the individual
initiating the commitment,

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 14 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Commitments Yes/ no/ na Explanation

object classification, and catalog of federal domestic assistance (CFDA)
number. (V)

Direct requested commitment to approving official. Approving official( s)
have the authority to commit funds. They review and approve or reject the
commitment request. As part of their review, they must verify funds
availability. Commitment requests should be transmitted electronically to
the approving official( s).

(V)

Review approved commitment request against edits; system performs following
edit checks. Approved commitments are processed through a series of edit
checks. For example,

verify authority of approving official( s), validate commitment data input
by requestor, verify accounting code( s), verify funds availability, and
provide controls to prevent processing a duplicate document.

(V)

Commit funds and post transactions to Standard General Ledger (SGL).
Transactions are recorded in

______________________________________________________________________________

Grant Financial System Requirements

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Page 15 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Commitments Yes/ no/ na Explanation

the financial system as commitments against budget accounts. Committed
dollars are matched against budgetary resources.

A requirement to use U. S. Standard General Ledger (SGL) accounts at the
transaction level is contained in the Federal Financial Management Act
(FFMIA) of 1996 and OMB Circular A- 127, Financial Management Systems.

Accounts and entries are identified in the Treasury Financial Manual (TFM),
Supplement No. 2, that is available on the SGL website at

www. fms. treas. gov/ ussgl.

(V)

Notify procurement/ grants office to start negotiation of grant with
potential grantee. Outstanding commitments must be reviewed and reconciled
continuously throughout the year to ensure that they are converted to valid
obligations. Funds not obligated should be decommitted no later than the
date on which funds expire. (V)

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Grant Financial System Requirements

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Page 16 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Decommitments Yes/ no/ na Explanation

(All requirements in the

?Decommitments? chapter of the JFMIP source document are valueadded.
However, decommitment requirements are mandatory when commitment
requirements are adopted by the agency.)

Decommitment process flow

1. Does the system support the following major steps associated with
processing a decommitment?

Initiate the decommitment request. The decommitment action is initiated by
the individual requesting decommitment. This request should be transmitted
electronically to the proper financial official( s). Organizationspecific
budgetary and program data are entered into the system regarding the
request. (V)

Perform edit checks. Approved decommitments are processed through a series
of edit checks:

Verify authority of approving official( s). Validate data input by
requestor, including CFDA number. (V)

Decommit funds and post to SGL. The transaction should be recorded in the
financial system as a

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 17 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Decommitments Yes/ no/ na Explanation

decommitment against the budgeted accounts.

The requirement to use SGL accounts at the transaction level is contained in
the Federal Financial Management Improvement Act (FFMIA) of 1996 and OMB
Circular A- 127,

Financial Management Systems. Accounts and entries are identified in the

Treasury Financial Manual, Supplement No. 2, which is available on the SGL
website at

www. fms. treas. gov/ ussgl.

(V)

Notify program staff. Decommitments are confirmed with program staff. (V)

Convert outstanding commitments. Outstanding commitments must be converted
to valid obligations or decommitted before the expiration date of the funds
committed. (V)

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Grant Financial System Requirements

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Page 18 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Obligations Yes/ no/ na Explanation

Obligation process flow

1. Does the system support the following major steps associated with
processing an obligation?

Review grant proposal. The proposed grant action is reviewed. The grant is
negotiated with the grantee, and a grant agreement document is prepared. The
applicant may review and approve or reject the grant agreement document. (M)

Direct grant agreement document to obligating official. Obligating official(
s) have the authority to legally bind the federal government to provide
funds for a specific project or purpose. Obligating officials review and
approve or reject grant agreement documents. They also provide for approval
or disapproval of grant obligation. (M)

Perform edit checks. Approved obligations are processed through a series of
edit checks:

Verify authority of obligating official( s). Validate grant obligation
against edits in the core financial system. Verify funds availability.
Validate input data, including the Catalog of

______________________________________________________________________________

Grant Financial System Requirements

______________________________________________________________________________
Page 19 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Obligations Yes/ no/ na Explanation

Federal Domestic Assistance (CFDA) number. Provide controls to prevent a
duplicate obligation. (M)

Obligate funds. Record transactions into the grants financial management
system. Provide the capability of maintaining the chronological order of
commitments, obligations, and payments. Provide the capability of citing
multiple appropriations or other funding sources. Record obligations or
federal funds authorized based on grant awards and liquidate related
commitment( s). (M)

Capture data elements. Examples of financial data elements are:

grant number; grantee or recipient name; grantee identifier; grant purpose;
dollar amount; accounting classification data, e. g.:

appropriation, object classification, project, and program; tax payer
identification; and CFDA number. (M)

Post transaction to the SGL. A requirement to use SGL accounts at the
transaction

______________________________________________________________________________

Grant Financial System Requirements

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Page 20 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Obligations Yes/ no/ na Explanation

level is contained in the Federal Financial Management Improvement Act
(FFMIA) of 1996 and OMB Circular A- 127,

Financial Management Systems. Accounts and entries are identified in the

Treasury Financial Manual, Supplement No. 2, which is available on the SGL
website at

www. fms. treas. gov/ ussgl.

(M)

______________________________________________________________________________

Grant Financial System Requirements

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Page 21 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Payments Yes/ no/ na Explanation

Payment process flows

1. Does the system support the following major steps?

Receive payment request from grantee. The grantee submits a request for
cash. If the awarding agency and the grantee have agreed to use a pooled
payment procedure, the grantee requests a single dollar amount covering all
its grants with the awarding agency. Otherwise, the grantee identifies the
amount of cash needed for each grant. (M)

Include optional data elements. Requirements in the request include

grantee name and identifier, amount requested, grantee official authorized
to submit request, authorized grantee?s information, amount of funds
authorized, amount approved, amount disallowed, program funding codes, and
appropriation code( s).

(M)

Review request. (M)

Perform edit checks. Screen the request for missing data

______________________________________________________________________________

Grant Financial System Requirements

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Page 22 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Payments Yes/ no/ na Explanation

elements, clerical errors, internal logic (e. g., request not in excess of
federal funds authorized). Perform nonroutine edit checks installed by the
federal awarding agency, such as:

Verify whether the grantee is delinquent in submitting financial reports if
financial reports are required. Verify funds availability. Provide controls
to prevent processing a duplicate payment. (M)

Flag record. The record may be flagged if the grantee is subject to
sanctions requiring the withholding of payments. Verification of Work
Performed requests for reimbursement are forwarded to the appropriate
personnel for verification of the work completed. (M)

Transfer cash to designated payee and post transactions to SGL. The federal
awarding agency transfers the approved amount to the grantee?s financial
institution and the transaction is posted to SGL. Payments may be recorded
in SGL as an advance or as an expenditure, depending on agency program
requirements.

The values posted to these SGL accounts depend on

______________________________________________________________________________

Grant Financial System Requirements

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Page 23 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Payments Yes/ no/ na Explanation

whether the grantee requested the payment advance by the pooling or grant-
by- grant method. If the grant- by- grant method was used, the portion of
the disbursement designated by the grantee for each grant is posted to a
subsidiary account corresponding to that grant. If the grantee used the
pooling method, the entire payment advance is distributed among grant
subsidiary accounts by algorithm. Regardless of the method used, additional
operations must be performed to further distribute the payment advance among
the contributing sources on a reasonable basis for any grant funded by
multiple sources.

SGL accounts are required for advance payments and for reimbursement
payments from appropriated funds for current operating expenses only. A
requirement to use SGL accounts at the transaction level is contained in the
Federal Financial Management Improvement Act (FFMIA) of 1996 and OMB
Circular A- 127,

Financial Management Systems. Accounts and entries are identified in the
TFM, Supplement No. 2, which is available on the SGL website at

www. fms. treas. gov/ ussgl.

(M)

______________________________________________________________________________

Grant Financial System Requirements

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Page 24 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Payments Yes/ no/ na Explanation

The following value- added requirements will become mandatory upon issuance
of governmentwide system standardization policy. (Note: In June 1998, the
CFO Council released a report endorsing the use of one of three existing
systems by the federal government for grant payments by October 1, 2002. The
report is available on the World Wide Web at:

www. financenet. gov/ financenet/ fed /cfo/ grants/ cd0618. htm.

Initiative to streamline grant payment systems in the federal government

2. If the entity is a Department of Defense organization, is it using the
Defense Procurement Payment System (DPPS)? (V)

3. If the entity is a civilian federal department or agency, is it using one
of the following two systems?

The Automated Standard Application for Payment System (ASAP) provided by the
Financial Management Service (FMS) of the U. S. Department of the Treasury
and the Federal Reserve Bank of Richmond. (V)

The Payment Management System (PMS) provided by the Department of Health

and Human Services (HHS).

(V)

______________________________________________________________________________

Grant Financial System Requirements

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Page 25 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Payments Yes/ no/ na Explanation

It should be stressed that the CFO Council endorsed these systems for the
grant payment process only. Individual agencies may elect to use these
systems for additional grant processes. The Council?s goal is to
significantly reduce the number of federal cash drawdown systems used
throughout the federal government and reduce the costs associated with the
development and maintenance of multiple systems.

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Grant Financial System Requirements

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Page 26 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

Overview

1. Is a liability (i. e., an account payable to the grantee) recognized for
any unpaid amounts due as of the reporting date in accordance with Federal
Accounting Standards Advisory Board (FASAB) Statement of Federal Financial
Accounting Standards Number 5,

Accounting for Liabilities of the Federal Government?

Generally, this is a two- step process. The first step is to recognize as an
expense and as a payable the amount of allowable expense that the grantees
have incurred as of the end of the period but have not collected from the
agency. That amount may include amounts claimed by the grantee or amounts
incurred but not reported by the grantee. This will require the agency to
estimate the amounts not reported to it by the grantee but due the grantee.

The second step occurs after the grantee has submitted financial reports
giving its actual costs. At that time, the agency should make any entries
needed to adjust the expense amounts previously recognized.

In addition to accruing expenses, the agency may be required to accrue a
receivable related to improper payments. In some, but not all cases,
agencies may request reimbursement from grantees

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Grant Financial System Requirements

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Page 27 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

for amounts improperly expended. (M)

2. Does the grant accrual system generally maintain various data such as the
following?

internal historical financial data, criteria/ structure of agency programs,
and relevant external information on the timing and nature of recipients?
cash flows. (M)

3. Does the grant system maintain the amounts disbursed to grantees during
each year and the amounts of expenses reported by the grantee? (M)

4. In addition, are other data such as grant award amounts and remittances
included in this information database? (M)

5. Do these data include the amounts disbursed to grantees during each year
and the amounts actually expended by the grantees? (M)

6. Does the system have either a format structured to facilitate accrual
accounting or provide an alternate process that will calculate an accrual
estimate?

(M)

7. When faced with the dilemma of estimating year- end accruals, is one of
the following several alternate processes used?

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Grant Financial System Requirements

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Page 28 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

Poll all grantees as of September 30 of each fiscal year. Take a statistical
sample of grantees and base projections on the sample. Perform a linear
regression or other appropriate statistical analysis as of the end of each
fiscal year, using amounts disbursed to grantees versus amounts expensed in
previous years to arrive at an algorithm to estimate current year- end
status of accruals. Forecast the fourth quarter expenditures using a
forecasting model such as the autoregressive forecasting model or the
exponentially weighted moving- average forecasting model. Estimate and post
a grant accrual based on an analysis of the aggregate amount of
disbursements and not on individual grantee file reviews. (V)

Accrual Process Flows

8. Does the system support the following major process steps?

Initiate the accrual process (AP). The accrual process must have the ability
to

review electronic files of grant and grantee records including program and
financial files and

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Grant Financial System Requirements

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Page 29 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

select and retrieve specific items (data) from these files and compare that
data to data stored in other programs. (M)

Update AP program accrual file. Data available for selection during the AP
accrual process should include the grantee?s identification number, types of
grants received, grant numbers, dollar amounts, time periods, grantee?s
financial history by fiscal quarters, and other data considered pertinent to
the agency. (M)

Run AP program accrual file. The accrual process uses the information
collected to recognize liabilities for any unpaid amounts due at a specific
time, e. g., the end of a month, quarter, or fiscal year.

Two situations can exist: Negative cash balance: Grantee liabilities exceed
advances, i. e., there is a negative cash balance, which indicates there is
a receivable to the grantee and an accounts payable to the agency.

Positive cash balance: Advances exceed grantee liabilities, i. e.,

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Grant Financial System Requirements

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Page 30 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

there is a positive cash balance, which indicates there is a payable to the
grantee and an accounts receivable to the agency.

(M)

Review/ approve program results/ approve. The information produced from the
accrual process allows an agency to reasonably estimate the amount of funds
listed as an advance to grantees that should be expensed and the amount of
unreported grantee expenses to record as a liability at the end of a fiscal
period. (M)

Post the grant accrual amount. A requirement to use Standard General Ledger
(SGL) accounts at the transaction level is contained in the Federal
Financial Management Improvement Act (FFMIA) of 1996 and OMB Circular A127,

Financial Management Systems. Accounts and entries are identified in the
TFM, Supplement No. 2, that is available on the SGL website at

www. fms. treas. gov/ ussgl.

(M) Validation of accrual estimates

9. If the grantee reports components of the accrual (e. g., where the grant
reports cash expenditures) have the data for cash expenditures been

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Grant Financial System Requirements

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Page 31 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Cost Accruals Yes/ no/ na Explanation

entered into the agency?s files, compared to the cash portion of the
accrual, and adjustments made to the accrual if material differences are
identified? (V)

10. Does the system support the following major steps?

Verification process begins. The verification process begins after the
grantee?s financial reports, for the end of the fiscal period involved, are
received and the data from these reports have been entered into the agency?s
files. (M)

Review/ approve program results. The agency analyzes the data input from
these reports, compares them to the estimated expenditures projected by the
AP, and posts the SGL entries. After comparing the projected expenditures
with those of the financial report, the required adjustments are calculated
and made so that the estimated expenditures equal the actual expenditures.
(M)

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Grant Financial System Requirements

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Page 32 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Financial Reports Yes/ no/ na Explanation

Financial report process (FRP) flow

(Note: Process steps from initiating the financial report process through
sending financial reports (FR) to grantees are not applicable to agencies
that do not prepare FRs. Their systems begin with the step

?Receive financial report.?) 1. Does the system support the

following major steps associated with processing financial reports?

Initiate FRP. Update FRP file. Run RFP file/ prepare financial report.
Receive financial report. Perform edit checks. Prepare transaction and post
to SGL. Reconcile. (M)

Initiate the financial report process

2. Does FRP have the ability to do the following?

review electronic files of the grant and grantee, including program and
financial files, select and review specific items (i. e., data) from these
files, and compare the selected data to data previously stored in FRP. (M)

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Grant Financial System Requirements

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Page 33 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Financial Reports Yes/ no/ na Explanation

Update FRP file

3. Do data selected by FRP include the following grantee items?

grantee?s identification number, types of grants received, grant identifying
number, dollar amounts, time periods of performance, grantee?s financial
history by grant, and other data considered pertinent by the granting
agency. (M)

Run FRP file. Prepare financial report.

4. Does FRP use the information collected to prepare financial reports for
the grantees at a specific time, e. g., the end of a month or a quarter? (M)

5. Does FRP have the ability to prepare the reports in both electronic and
hard copy formats? (M)

Receive financial report

6. Do financial reports received electronically from the grantees feed
automatically into the grants financial report process?

(M)

7. Are reports received in hard copy manually input to the report process?
(M)

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Grant Financial System Requirements

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Page 34 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Financial Reports Yes/ no/ na Explanation

Edit process

8. Does the edit process review the report and verify for

completeness, mathematical correctness, validity of information such as
grant numbers and award numbers, proper certification, assurance that
amounts reported as expenditures do not exceed the balance of funds
available, controls to prevent the processing of duplicate reports, and the
return of reports failing the edit process to the grantee. (M)

Transactions prepared and posted to SGL

9. If the federal department/ agency uses other agency systems for
processing grantee?s financial reports (e. g., HHS? Payment Management
System), does it have a reconciliation process in place between the other
agency?s financial systems and the agency?s SGL? (M)

10. Are SGL entries used to expense advance payments? A requirement to use
SGL accounts at the transaction level is contained in the Federal Financial
Management Improvement Act (FFMIA) of 1996 and OMB Circular A- 127,

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Grant Financial System Requirements

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Page 35 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Financial Reports Yes/ no/ na Explanation

Financial Management Systems. Accounts and entries are identified in TFM,
Supplement No. 2, which is available on the SGL website at

www. fms. treas. gov/ ussgl. (M)

11. Are SGL entries also used to adjust for differences between the grant
expenditures previously posted to these accounts when reimbursement payments
were made to the grantees and the grant expenditures reported on the
grantee?s financial reports?

A requirement to use SGL accounts at the transaction level is contained in
the Federal Financial Management Improvement Act (FFMIA) of 1996 and OMB
Circular A- 127,

Financial Management Systems. Accounts and entries are identified in TFM,
Supplement No. 2, which is available on the SGL website at

www. fms. treas. gov/ ussgl. (M) Reconciliation

12. Is sufficient and appropriate information maintained for reconciliation
with the agency?s core financial system? (M)

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Grant Financial System Requirements

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Page 36 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Interest Collections Yes/ no/ na Explanation

Overview

1. Is the interest earned on advances of federal funds handled in accordance
with the prescribed administrative requirements based on the cost principles
established for the grantee organization involved?

(M)

2. Does the system support the following major steps?

State governments: Interest earned on advances of federal funds by state
agencies, instrumentalities, and fiscal agents is governed by the Cash
Management Improvement Act (CMIA) of 1996, (i. e., Public Law 101- 453).
State organizations and/ or representatives not subject to CMIA and its
implementing regulations are treated as ?other

organizations.? (M)

Other organizations: Interest earned on federal advances by other grantee
organizations is subject to OMB Circular A- 110, Grants Management Common
Rule, or program regulations as applicable. In accordance with Section .22
of OMB Circular A- 110 concerning entities that earn interest earned on
federal advances in excess of $250 per year in the aggregate this interest
must be remitted annually to HHS,

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Grant Financial System Requirements

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Page 37 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Interest Collections Yes/ no/ na Explanation

Payment Management System, Rockville, Maryland 20852. This office acts as
the governmentwide agent for all collections of interest generated from
grant advances. (M)

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Grant Financial System Requirements

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Page 38 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Grant Closeout Yes/ no/ na Explanation

Financial processes

1. Does the system support the following major processes?

financial status report (FSR) closing process, federal cash transaction
report (FCTR) process, posting of closing collections, reconciliation. (M)

Financial status report (FSR) closing process

2. Does the amount reported as expense agree with the cash disbursed on
FCTR? (M)

3. Are unobligated balances deobligated in the accounting system? (M)

4. Is a closing transaction recorded/ issued to close out the grant in the
accounting system?

(M)

5. Are procedures established to identify grantees who are delinquent in
submitting final reports? (M)

Federal cash transaction report process

6. Does the granting agency monitor accounts that have expired grants and
that have not been reported as closed by the recipient? (M)

7. Does the agency track open grants funded from

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Grant Financial System Requirements

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Page 39 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Grant Closeout Yes/ no/ na Explanation

appropriations that are expiring within the next 12 months?

(M) Post closing collections

8. Does the agency have accounting procedures to collect receivables and
liquidate payables due after the closeout of the grant? (M)

Reconciliation

9. Is sufficient information maintained to reconcile with the agency?s core
financial system?

(M)

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Grant Financial System Requirements

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Page 40 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Records retention Yes/ no/ na Explanation

1. Does the agency system( s) maintain, store, and permit ready retrieval of
grant financial data? The time frames for various parts of this requirement
differ depending on the subject matter. (M)

2. Is the system sufficiently flexible to retain and purge data consistent
with varying recordkeeping requirements?

(M)

3. Is the destruction of agency records, created within the federal
government, approved by the National Archives and Records Administration
(NARA) per 36 CFR 1228?

Expenditure accounting records are currently authorized for disposal by
General Records Schedule 7, Expenditure Accounting Records, and General
Records Schedule 20,

Electronic Records. Copies may be obtained from the agency?s records officer
or from NARA. For expenditure records not covered by this authority or for
any questions regarding the disposition of federal records, contact:

National Archives and Records Administration 7th Street and Pennsylvania

Avenue, NW Washington, DC 20408.

The telephone number is (202) 501- 5400. (M)

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Grant Financial System Requirements

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Page 41 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

General System Requirements Yes/ no/ na Explanation

1. Is the system, at the standard and/ or agency level, able to accept,
process, and report on transactions with other internal and external
systems? (M)

2. Does the system record and track such transactions and related
information in order to provide the basis for central control? This may
require a custom interface to properly identify and format the transactions.
(M)

3. Does the system provide flexibility in accepting data input from multiple
media so that it can recognize the unique data input requirements of
interface systems? (M)

4. Does the system subject all transactions from interfacing systems to the
grant financial system edits and validations?

(M)

5. Does the system provide the capability of customizing data input,
processing rules, and edit criteria? (M)

6. Does the system provide flexibility in defining internal operational
procedures and in supporting agency requirements? (M)

7. Does the system provide the capability of identifying and processing
information from other systems that interface with and update the standard
grant financial system? (M)

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Grant Financial System Requirements

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Page 42 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

General System Requirements Yes/ no/ na Explanation

8. Does the system provide the capability of allowing users to customize
output for reporting and providing interfaces to other systems necessary to
meet agency requirements for external processing (e. g., general ledger
posting, budget formulation, budget reconciliation, and budget execution)?
(M)

9. Does the system capture the transaction dates in order to ensure
compliance with the Cash Management Improvement Act? (M)

10. Does the system capture information to comply with the reporting and
referral requirements of the Debt Collection Improvement Act of 1996? (M)

11. Does the system capture information necessary for reporting on property,
plant, and equipment in the hands of grantees as required by Statement of
Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for
Property, Plant, and Equiqment? (M)

12. Does the system capture financial information necessary to comply with
OMB Circular A110,

Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other NonProfit
Organizations (11/ 19/ 93, amended 9/ 30/ 99)? (M)

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Grant Financial System Requirements

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Page 43 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

General System Requirements Yes/ no/ na Explanation

Other general systems issues

13. Does the agency use the variety of general systems requirements-
including data stewardship, systems architecture, systems integration,
internal control, and others- contained in the JFMIP Federal Financial
Management System Requirements (FFMSR) document entitled Framework for
Federal Financial Management Systems (FFMSR0)

issued January 1995? The framework document along with all other JFMIP
requirements documents can be found at

www/ financenet. gov/ jfmip/ jfmi p. htm. (M)

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Grant Financial System Requirements

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Page 44 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)

Information technology in the grants process Yes/ no/

na Explanation

Note: There are no checklist questions drawn from this section of the JFMIP
source document (pages 37- 39).

(193013)

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Related Products

______________________________________________________________________________
Page 45 GAO- 01- 911G - Grant Financial System Checklist (9/ 01) These
related products address three main categories: internal control, financial

management systems, and financial reporting (accounting standards). We have
developed these guidelines and tools to assist agencies in improving or
maintaining effective operations and financial management.

Internal Control

Standards for Internal Control Streamlining the Payment Process in the
Federal Government, While Maintaining Effective Internal

GAO/ AIMD- 00- 21. 3.1, November 1999. Control, GAO/ AIMD- 00- 21.3.2, May
2000.

Determining Performance and Internal Control Management and Accountability
Challenges and High Evaluation Tool, GAO- 01- 1008G,

Risks, GAO- 01- 159SP, November 2000. August 2001.

Financial Management Systems

Framework for Federal Financial Inventory System Checklist, Management
System Checklist, GAO/ AIMD- 98- 21. 2.4, May 1998. GAO/ AIMD- 98- 21. 2.1,
May 1998.

System Requirements for Managerial Core Financial System Requirements

Cost Accounting Checklist, Checklist, GAO/ AIMD- 00- 21.2.2, GAO/ AIMD- 99-
21. 2.9, January 1999. February 2000.

Human Resources and Payroll Direct Loan System Requirements Systems
Requirements Checklist Checklist, GAO/ AIMD- 00- 21.2.6, GAO/ AIMD- 00- 21.
2.3, March 2000. April 2000.

Travel System Requirements Seized Property and Forfeited Assets

Checklist, GAO/ AIMD- 00- 21.2.8, Requirements Checklist,

May 2000. GAO- 01- 99G, October 2000.

Guaranteed Loan System Requirements Checklist,

GAO- 01- 371G, March 2001

Financial Reporting (Accounting Standards)

?Checklist for Reports Prepared Under the CFO Act,? (Section 1004 of the
GPO/ PCIE Financial Audit Manual (FAM), July 2001). This is a checklist
containing agency financial statement reporting requirements.

These documents are available on the Internet on GAO?s home page (www. gao.
gov)

under the heading ?Other Publications? and the subheading ?Accounting and
Financial

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Related Products

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Page 46 GAO- 01- 911G - Grant Financial System Checklist (9/ 01)
Management.? They can also be obtained from GAO, 700 4 th Street NW, Room
1100,

Washington DC 20548, or by calling (202) 512- 6000 or TDD (202) 512- 2537.
*** End of document. ***