Financial Management: Recurring Financial Systems Problems Hinder
FFMIA Compliance (29-OCT-03, GAO-04-209T).
The Federal Financial Management Improvement Act of 1996 (FFMIA)
requires Chief Financial Officers (CFO) Act agencies to implement
and maintain financial management systems that comply
substantially with (1) federal financial management systems
requirements, (2) federal accounting standards, and (3) the U.S.
Government Standard General Ledger. Most federal agencies face
long-standing challenges, which are discussed in greater detail
in our mandated September 2003 report, Sustained Efforts Needed
to Achieve FFMIA Accountability (GAO-03-1062). In light of these
circumstances, Congress asked GAO to testify about recurring
financial management systems problems and agencies' efforts to
upgrade their systems.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-209T
ACCNO: A08782
TITLE: Financial Management: Recurring Financial Systems
Problems Hinder FFMIA Compliance
DATE: 10/29/2003
SUBJECT: Accountability
Accounting standards
Computer security
Financial management systems
Financial records
Internal controls
Noncompliance
Systems design
Strategic planning
President's Management Agenda
U.S. Government Standard General Ledger
******************************************************************
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GAO-04-209T
United States General Accounting Office
GAO Testimony
Before the Subcommittee on Government Efficiency and Financial Management,
Committee on Government Reform, House of Representatives
For Release on Delivery Expected at 2:30 p.m. EST Wednesday, October 29,
2003
FINANCIAL MANAGEMENT
Recurring Financial Systems Problems Hinder FFMIA Compliance
Statement of Sally E. Thompson
Director, Financial Management and Assurance
A
GAO-04-209T
Highlights of GAO-04-209T, a testimony before the Subcommittee on
Government Efficiency and Financial Management, Committee on Government
Reform, House of Representatives
The Federal Financial Management
Improvement Act of 1996 (FFMIA)
requires Chief Financial Officers
(CFO) Act agencies to implement
and maintain financial management
systems that comply substantially
with (1) federal financial
management systems
requirements, (2) federal
accounting standards, and (3) the
U.S. Government Standard General
Ledger. Most federal agencies face
long-standing challenges, which are
discussed in greater detail in our
mandated September 2003 report,
Sustained Efforts Needed to
Achieve FFMIA Accountability
(GAO-03-1062). In light of these
circumstances, the Subcommittee
asked GAO to testify about
recurring financial management
systems problems and agencies'
efforts to upgrade their systems.
GAO is not making new recommendations in this testimony, but in a past
report has made specific recommendations aimed at addressing the problems
hindering agencies' compliance with FFMIA.
www.gao.gov/cgi-bin/getrpt?GAO-04-209T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Sally Thompson,
(202)512-9450, [email protected].
October 29, 2003
FINANCIAL MANAGEMENT
Recurring Financial Systems Problems Hinder FFMIA Compliance
The results of the fiscal year 2002 FFMIA assessments performed by agency
inspectors general or their contract auditors again show that the same
types of problems continue to plague the financial management systems used
by the CFO Act agencies. While much more severe at some agencies than
others, the nature and severity of the problems indicate that overall,
agency management lacks the full range of information needed for
accountability, performance reporting, and decision making. As shown in
the figure below, audit reports highlight six recurring problems that have
been consistently reported for those agencies whose auditors reported
noncompliant systems.
Problems Reported by Auditors for Fiscal Years 2000 through 2002
Agencies have recognized the seriousness of the financial systems
weaknesses, and have many efforts underway to implement or upgrade
financial systems to alleviate long-standing problems. As of September 30,
2002, 17 CFO Act agencies advised us they were planning to or were in the
process of implementing a new core financial system. It is imperative that
agencies adopt leading practices, such as top management commitment and
business process reengineering, to ensure successful systems
implementation and to avoid complicating factors, such as poor
communication and inadequate project planning, that have hampered some
agencies' efforts in the past.
Congressional oversight, the Joint Financial Management Improvement
Program Principals, and the President's Management Agenda are driving
forces behind several governmentwide efforts now underway to improve
federal financial management. Continued attention by these key drivers is
critical to sustaining agencies efforts to improve their financial
management systems.
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here to discuss the challenges most of the federal
departments and agencies still face in meeting the primary goals of the
Congress in enacting the Federal Financial Management Improvement Act of
1996 (FFMIA).1 As you requested, our testimony today addresses the
recurring financial management systems problems that agencies are facing
and the status of their efforts to implement systems that substantially
comply with FFMIA.
As you know, FFMIA builds on the foundation laid by the Chief Financial
Officers (CFO) Act of 19902 by reflecting the need for agencies to have
financial management systems that can generate timely, accurate, and
useful information with which to make informed decisions and to ensure
accountability on an ongoing basis. FFMIA requires the major departments
and agencies covered by the CFO Act3 to implement and maintain financial
management systems that comply substantially with the (1) federal
financial management systems requirements, (2) applicable federal
accounting standards, and (3) U.S. Government Standard General Ledger
(SGL) at the transaction level. Further, FFMIA requires auditors to report
in their CFO Act financial statement audit reports whether the agencies'
financial management systems comply with FFMIA's requirements. We are also
required to report annually on the implementation of the act.
1Pub. L. No. 104-208, sec.101(f)(title VIII), 110 Stat. 3009-389.
2Pub. L. No. 101-576, 104 Stat. 2838 (1990).
3There were initially 24 CFO Act agencies (see footnote 2 above). The
Federal Emergency Management Agency (FEMA), one of the 24 CFO Act
agencies, was subsequently transferred to the new Department of Homeland
Security (DHS) effective March 1, 2003. With this transfer, FEMA will no
longer be statutorily required to prepare audited stand-alone financial
statements. We included FEMA in our review because FEMA was a CFO Act
agency as of September 30, 2002. DHS must prepare audited financial
statements under the Accountability of Tax Dollars Act of 2002, because it
is a "covered executive agency" for purposes of 31 U.S.C. 3515. However,
DHS was not established as a CFO Act agency and therefore is not
statutorily subject to FFMIA. Consideration is now being given to making
DHS a CFO Act agency and therefore subject to FFMIA in the Department of
Homeland Security Financial Accountability Act, H.R. 2886, 108th Congress.
As discussed in our recently issued annual report on FFMIA,4 the results
of the fiscal year 2002 FFMIA assessments performed by agency inspectors
general (IG) or their contract auditors again show that the same types of
problems still plague the financial management systems used by the CFO Act
agencies. While much more severe at some agencies than others, the nature
and severity of the problems indicate that overall, agency management
lacks the full range of information needed for accountability, performance
reporting, and decision making. While the CFO Act agencies have obtained
more clean or unqualified audit opinions on their financial statements,
often through extraordinary, labor-intensive measures, there is little
evidence of marked improvements in agencies' capacities to create the full
range of information needed to manage day-to-day operations. As we have
previously testified5 before this Subcommittee, if agencies continue year
after year to rely on significant costly and time-intensive manual efforts
to achieve or maintain unqualified opinions without improving underlying
financial management systems, it can mislead the public about the true
status of the agencies' financial management capabilities.
4U.S. General Accounting Office, Financial Management: Sustained Efforts
Needed to Achieve FFMIA Accountability, GAO-03-1062 (Washington, D.C.:
Sept. 30, 2003).
5U.S. General Accounting Office, Financial Management: Effective
Implementation of FFMIA is Key to Providing Reliable, Useful, and Timely
Data, GAO-02-791T (Washington, D.C.: June 6, 2002) and Financial
Management: Agencies Face Many Challenges in Meeting the Goals of the
Federal Financial Management Improvement Act, GAO/T-AIMD-00-178
(Washington, D.C.: June 6, 2000).
Agencies have recognized the seriousness of the financial systems
weaknesses, and have many efforts underway to implement or upgrade
financial systems to alleviate long-standing problems. As of September 30,
2002, 17 CFO Act agencies advised us they were planning to or were in the
process of implementing a new core financial system. Under the Office of
Management and Budget's (OMB) Circular A-127, Financial Management
Systems, agencies are required to purchase commercial off-the-shelf (COTS)
packages sold by vendors whose core financial systems software has been
certified.6 Some of the key factors that affect FFMIA compliance of an
implemented COTS package include how the software works in the agency's
environment, whether any customizations or modifications7 have been made
to the software, and the success of converting data from legacy systems to
new systems.
Successful implementation efforts of financial management systems are
supported by the presence of several key characteristics, which apply to
both the public and private sectors. These characteristics include, among
others, (1) involvement by the users, (2) support of executive management,
(3) leadership provided by experienced project managers, (4) clear
definition and management of project requirements, (5) proper planning,
and (6) realistic expectations. Conversely, financial systems
implementation projects are often hindered by the lack of executive
support, poor communication between managers and stakeholders, poor
estimations and planning, and poor documentation and updating of user
requirements.
To provide impetus for upgrading financial management systems that provide
reliable, timely, and useful data, congressional oversight, the Joint
Financial Management Improvement Program (JFMIP) Principals,8 and the
President's Management Agenda (PMA) are driving forces behind several
6The Program Management Office, managed by the Executive Director of the
Joint Financial Management Improvement Program (JFMIP), with funds
provided by the CFO Council agencies, tests vendor COTS packages and
certifies that they meet certain federal financial management systems
requirements for core financial systems.
7Customization is the process of setting parameters within an application
to make it operate in accordance with the entity's business rules.
Customizations are normally supported by vendors in subsequent upgrades.
Modification is the process of writing or changing code and modifications
are not supported by vendors in subsequent upgrades.
8The JFMIP Principals are the Secretary of the Treasury, the Directors of
OMB and the Office of Personnel Management (OPM), and the Comptroller
General of the United States.
governmentwide efforts now underway to improve federal financial
management. The Congress has demonstrated leadership in improving federal
financial management by enacting financial management reform laws and
through oversight hearings, such as this one today. The JFMIP Principals
have continued the series of regular deliberative meetings that focus on
key financial management reform issues. The PMA, being implemented by the
administration as an agenda for improving the management and performance
of the federal government, includes five crosscutting initiatives,
including improved financial performance. Continued attention by these key
drivers is critical to sustaining agencies' efforts to improve their
financial management systems.
My statement today will focus on these issues and discuss (1) auditors'
determinations of FFMIA compliance for fiscal year 2002, (2) problems that
affect agency systems' compliance with FFMIA, (3) agency efforts to
implement new core financial systems, (4) key characteristics of
successful systems implementation and the challenges federal agencies
face, and (5) the status of governmentwide financial management
improvement efforts.
Auditors' Assessments of FFMIA Compliance for Fiscal Year 2002
For fiscal year 2002, Inspectors General and their contract auditors
reported that the systems for 19 of the 24 CFO Act agencies did not comply
substantially with at least one of the FFMIA requirements-federal
financial management systems requirements, applicable federal accounting
standards, or the SGL. Auditors' assessments of financial systems'
compliance with FFMIA for 3 agencies-the Department of Labor (DOL),
Environmental Protection Agency (EPA), and the National Science Foundation
(NSF)-changed from fiscal years 2001 to 2002. For fiscal year 2002, the
auditors for DOL concluded that its systems were not in substantial
compliance with the managerial cost standard and thus were not in
compliance with FFMIA. Auditors for EPA and NSF found the agencies'
respective systems to be in substantial compliance, a change from the
fiscal year 2001 assessments.
As we have testified previously,9 while the number of agencies receiving
clean opinions increased over the past 6 years from 11 in fiscal year 1997
to 21 for fiscal year 2002, the number of agencies reported to have
systems that lacked substantial compliance with FFMIA has remained steady.
While the increase in unqualified opinions is noteworthy, a more important
barometer of financial systems' capability and reliability is that the
number of agencies for which auditors provided negative assurance10 of
FFMIA compliance has remained relatively constant throughout this same
period. In our view, this has led to an expectation gap. When more
agencies receive clean opinions, expectations are raised that the
government has sound financial management and can produce reliable,
useful, and timely information on demand throughout the year, whereas
FFMIA assessments offer a different perspective. For agencies equipped
with modern, fully integrated financial management systems, preparation of
financial statements would be more routine and much less costly.
Auditors for the remaining five agencies-the Department of Energy, EPA,
the General Services Administration (GSA), NSF, and the Social Security
Administration (SSA)-provided negative assurance in reporting on FFMIA
compliance for fiscal year 2002. In their respective reports, they
included language stating that while they did not opine as to FFMIA
compliance, nothing came to their attention during the course of their
planned procedures indicating that these agencies' financial management
systems did not meet FFMIA requirements. If readers do not understand the
concept of negative assurance, they may have gained an incorrect
impression that these systems have been fully tested by the auditors and
found to be substantially compliant. Because the act requires auditors to
"report whether" agency systems are substantially compliant, we believe
the auditor needs to provide positive assurance, which would be a
definitive statement as to whether agency financial management systems
substantially comply with FFMIA, as required under the statute. This is
what we will do for the financial statement audits we perform when
reporting that an entity's financial management systems were in
substantial compliance. To provide positive assurance, auditors need to
consider many other aspects of financial management systems than those
applicable to the purposes of rendering an opinion on the financial
statements.
9GAO-02-791T.
10In providing negative assurance, auditors are stating that nothing came
to their attention indicating that an agency's financial management
systems do not meet FFMIA requirements.
Widespread Systems Problems Affect FFMIA Compliance
Based on our review of the fiscal year 2002 audit reports for the 19
agencies reported to have systems not in substantial compliance with one
or more of FFMIA's three requirements, we identified six primary
problems11 affecting FFMIA noncompliance:
o nonintegrated financial management systems,
o inadequate reconciliation procedures,
o lack of accurate and timely recording of financial information,
o noncompliance with the SGL,
o lack of adherence to federal accounting standards, and
o weak security controls over information systems.
The relative frequency of these problems12 at the 19 agencies reported as
having noncompliant systems is shown in figure 1. In addition, we caution
that the occurrence of problems in a particular category may be even
greater than auditors' reports of FFMIA noncompliance would suggest
because auditors may not have included all problems in their reports.
FFMIA testing may not be comprehensive and other problems may exist that
were not identified and reported. For example, at some agencies, the
problems are so serious and well known that the auditor can readily
determine that the systems are not substantially compliant without
examining every facet of FFMIA compliance.
11The same six types of problems were cited by auditors in their audit
reports for fiscal years 2000 and 2001.
12Auditors may not have reported these problems as specific reasons for
lack of substantial compliance with FFMIA.
Figure 1: Problems Reported by Auditors for Fiscal Years 2000 through 2002
Nonintegrated Financial Management Systems
The CFO Act calls for agencies to develop and maintain an integrated
accounting and financial management system13 that complies with federal
systems requirements and provides for (1) complete, reliable, consistent,
and timely information that is responsive to the financial information
needs of the agency and facilitates the systematic measurement of
performance, (2) the development and reporting of cost management
information, and (3) the integration of accounting and budgeting
information. In this regard, OMB Circular A-127, Financial Management
Systems, requires agencies to
13Federal financial system requirements define an integrated financial
system as one that coordinates a number of previously unconnected
functions to improve overall efficiency and control. Characteristics of
such a system include (1) standard data classifications for recording
financial events, (2) common processes for processing similar
transactions, (3) consistent control over data entry, transaction
processing, and reporting, and (4) a system design that eliminates
unnecessary duplication of transaction entry.
establish and maintain a single integrated financial management system
that conforms with functional requirements published by JFMIP.
An integrated financial system coordinates a number of functions to
improve overall efficiency and control. For example, integrated financial
management systems are designed to avoid unnecessary duplication of
transaction entry and greatly lessen reconciliation issues. With
integrated systems, transactions are entered only once and are available
for multiple purposes or functions. Moreover, with an integrated financial
management system, an agency is more likely to have reliable, useful, and
timely financial information for day-to-day decision making as well as
external reporting.
Agencies that do not have integrated financial management systems
typically must expend major effort and resources, including in some cases
hiring external consultants, to develop information that their systems
should be able to provide on a daily or recurring basis. In addition,
opportunities for errors are increased when agencies' systems are not
integrated. Agencies with nonintegrated financial systems are more likely
to be required to devote more resources to collecting information than
those with integrated systems.
Auditors frequently mentioned the lack of modern, integrated financial
management systems in their fiscal year 2002 audit reports. As shown in
figure 1, auditors for 12 of the 19 agencies with noncompliant systems
reported this as a problem. For example, auditors for the Department of
Transportation (DOT) reported that its major agencies still use the
Departmental Accounting and Financial Information System (DAFIS), the
existing departmentwide accounting system14 and cannot produce auditable
financial statements based on the information in DAFIS. For example, DOT's
IG reported that DOT made about 860 adjustments outside of DAFIS totaling
$51 billion in order to prepare the financial statements.15 DOT's IG also
reported that there were problems linking some information between DAFIS
and the Federal Highway Administration's Fiscal Management Information
System (FMIS). DOT uses FMIS to record initial obligations for federal aid
grants to states. However, due to problems
14DOT is implementing a COTS-based core financial system called Delphi.
DOT management projects that the implementation will be complete in fiscal
year 2004.
15Office of Inspector General, Department of Transportation, Consolidated
Financial Statements for Fiscal Years 2002 and 2001, FI-2003-018 (Jan. 27,
2003).
resulting from upgrades and changes made to the FMIS system, all
obligations are not electronically transferred from FMIS to DAFIS. As of
September 30, 2002, valid obligations of about $388 million were
understated. Moreover, problems linking information also existed between
Delphi, DOT's new financial management system, and the Federal Transit
Administration's (FTA) financial feeder systems that prevented FTA from
electronically processing about $350 million in payments related to its
Electronic Clearing House Operation. These transactions had to be manually
processed into Delphi. What is important here is that the information
developed to prepare auditable annual financial statements is not
available on an ongoing basis for day-to-day management of DOT's programs
and operations.
As we have reported,16 cultural resistance to change, military service
parochialism, and stovepiped operations have played a significant role in
impeding previous attempts to implement broad-based reforms at the
Department of Defense (DOD). The department's stovepiped approach is most
evident in its current financial management systems environment, which DOD
recently estimated to include approximately 2,300 systems and systems
development projects-many of which were developed in piecemeal fashion and
evolved to accommodate different organizations, each with its own policies
and procedures. As DOD management has acknowledged,17 the department's
current financial environment is comprised of many discrete systems
characterized by poor integration and minimal data standardization and
prevents managers from making more timely and cost-effective decisions.
Inadequate Reconciliation Procedures
A reconciliation process, even if performed manually, is a valuable part
of a sound financial management system. In fact, the less integrated the
financial management system, the greater the need for adequate
reconciliations because data are accumulated from various sources. For
example, the Department of Health and Human Services (HHS) IG
16U.S. General Accounting Office, Department of Defense: Status of
Financial Management Weaknesses and Progress Toward Reform, GAO-03-931T
(Washington, D.C.: June 25, 2003).
17Department of Defense, Performance and Accountability Report, Fiscal
Year 2002 (Jan. 31, 2003).
reported18 that the department's lack of an integrated financial
management system continues to impair the ability of certain operating
divisions to prepare timely information. Moreover, certain reconciliation
processes were not adequately performed to ensure that differences were
properly identified, researched, and resolved in a timely manner and that
account balances were complete and accurate. Reconciliations are needed to
ensure that data have been recorded properly between the various systems
and manual records. The Comptroller General's Standards for Internal
Control in the Federal Government highlights reconciliation as a key
control activity.
As shown in figure 1, auditors for 11 of the 19 agencies with noncompliant
systems reported that the agencies had reconciliation problems, including
difficulty reconciling their fund balance with Treasury accounts19 with
Treasury's records. Treasury policy requires agencies to reconcile their
accounting records with Treasury records monthly, which is comparable to
individuals reconciling their checkbooks to their monthly bank statements.
As we recently testified,20 DOD had at least $7.5 billion in unexplained
differences between Treasury and DOD fund activity records. Many of these
differences represent disbursements made and reported to Treasury that had
not yet been properly matched to obligations and recorded in DOD
accounting records. In addition to these unreconciled amounts, DOD
identified and reported an additional $3.6 billion in payment recording
errors. These include disbursements that DOD has specifically identified
as containing erroneous or missing information and that cannot be properly
recorded and charged against the correct, valid fund account. DOD records
many of these payment problems in suspense accounts. While DOD made $1.6
billion in unsupported adjustments to its fund balances at the end of
fiscal year 2002 to account for a portion of these payment recording
errors, these adjustments did not resolve the related errors.
18Office of Inspector General, Independent Auditor's Report on Financial
Statements, A-17-02-0001, Fiscal Year 2002 Performance and Accountability
Report, U.S. Department of Health and Human Services.
19Agencies record their budget spending authorizations in their fund
balance with Treasury accounts. Agencies increase or decrease these
accounts as they collect or disburse funds.
20GAO-03-931T.
Inadequate reconciliation procedures also complicate the identification
and elimination of intragovernmental activity and balances, which is one
of the principal reasons we continue to disclaim on the government's
consolidated financial statements. As we testified in April 2003,21
agencies had not reconciled intragovernmental activity and balances with
their trading partners22 and, as a result, information reported to
Treasury is not reliable. For several years, OMB and Treasury have
required CFO Act agencies to reconcile selected intragovernmental activity
and balances with their trading partners. However, a substantial number of
CFO Act agencies did not perform such reconciliations for fiscal years
2002 and 2001, citing such reasons as (1) trading partners not providing
needed data, (2) limitations and incompatibility of agency and trading
partner systems, and (3) human resource issues. For both of these years,
amounts reported for federal trading partners for certain
intragovernmental accounts were significantly out of balance. Actions are
being taken governmentwide under OMB's leadership to address problems
associated with intragovernmental activity and balances.
Lack of Accurate and Timely Recording of Financial Information
Auditors for 17 agencies reported the lack of accurate and timely
recording of financial information for fiscal year 2002 compared to the 14
agencies23 for which auditors noted similar problems in their 2001
reports. Accurate and timely recording of financial information is key to
successful financial management. Timely recording of transactions can
facilitate accurate reporting in agencies' financial reports and other
management reports that are used to guide managerial decision making. The
Comptroller General's Standards for Internal Control in the Federal
Government states that transactions should be promptly recorded to
maintain their relevance and value to management in controlling operations
and making decisions.
21U.S. General Accounting Office, Fiscal Year 2002 U.S. Government
Financial Statements: Sustained Leadership and Oversight Needed for
Effective Implementation of Financial Management Reform, GAO-03-572T
(Washington, D.C.: Apr. 8, 2003).
22Trading partners are U.S. government agencies, departments, or other
components that do business with each other.
23In our October 2002 FFMIA report, we stated that auditors had discussed
the lack of accurate and timely recording of transactions at 12 agencies.
As part of our analysis of most recent agency audit reports, it became
apparent that these problems were reported in prior years for 2 additional
agencies, but the earlier audit reports did not include sufficient detail
to make these assessments.
Untimely recording of transactions during the fiscal year can result in
agencies making substantial efforts at fiscal year-end to perform
extensive manual financial statement preparation efforts that are
susceptible to error and increase the risk of misstatements. Gathering
financial data only at year-end does not provide adequate time to analyze
transactions or account balances. Further, it impedes management's ability
throughout the year to have timely and useful information for decision
making. For example, auditors reported24 that, for fiscal year 2002,
Department of Justice (Justice) components did not adjust the status of
obligations on a quarterly basis as required, and as a result, extensive
manual efforts had to be performed at year-end to correct the status of
obligation records. This process of reviewing the status of obligations
only at the end of the year increases the risk that errors will go
undetected, does not provide managers with accurate information during the
year for decision making, and results in misstatements in the financial
statements.
Noncompliance with the SGL
Implementing the SGL at the transaction level is one of the specific
requirements of FFMIA. However, as shown in figure 1, auditors for 9 of
the 19 noncompliant agencies reported that the agencies' systems did not
comply with SGL requirements. The SGL promotes consistency in financial
transaction processing and reporting by providing a uniform chart of
accounts and pro forma transactions. Use of the SGL also provides a basis
for comparison at agency and governmentwide levels. These defined accounts
and pro forma transactions are used to standardize the accumulation of
agency financial information, as well as enhance financial control and
support financial statement preparation and other external reporting. By
not implementing the SGL, agencies are challenged to provide consistent
financial information across their components and functions.
24PricewaterhouseCoopers, Report of Independent Accountants, January 15,
2003, FY 2002 Performance & Accountability Report, U.S. Department of
Justice.
As in previous years, the Department of Housing and Urban Development's
(HUD) auditors reported that the Federal Housing Administration's (FHA)
systems were noncompliant with the SGL for fiscal year 2002 because FHA
must use several manual processing steps to convert its commercial
accounts to SGL accounts.25 FHA's 19 legacy insurance systems, which fed
transactions to its commercial general ledger system, lacked the
capabilities to process transactions in the SGL format. Therefore, FHA
provided only consolidated summary-level data to HUD's Central Accounting
and Program System (HUDCAPS). As we reported,26 FHA used several manual
processing steps to provide summary-level data, including the use of
personal-computer-based software to convert the summary-level commercial
accounts to government SGL, and transfer the balances to HUDCAPS. This
process did not comply with JFMIP requirements that the core financial
system provide for automated month-and year-end closing of SGL accounts
and the roll-over of the SGL account balances.
Lack of Adherence to Federal Accounting Standards
One of FFMIA's requirements is that agencies' financial management systems
account for transactions in accordance with federal accounting standards.
Agencies face significant challenges implementing these standards. As
shown in figure 1, auditors for 13 of the 19 agencies with noncompliant
systems reported that these agencies had problems complying with one or
more federal accounting standards. Auditors reported that agencies are
having problems implementing standards that have been in effect for some
time, as well as standards that have been promulgated in the last few
years. For example, auditors for three agencies-DOD, Justice, and the
Federal Emergency Management Agency (FEMA)-reported weaknesses in
compliance with Statement of Federal Financial Accounting Standards
(SFFAS) No. 6, Accounting for Property, Plant, and Equipment, which became
effective for fiscal year 1998. Auditors for DOD reported that DOD did not
capture the correct
25To help address deficiencies with its legacy general ledger system, as a
first step in upgrading its overall financial management system, FHA
implemented the general ledger module of a COTS software package on
October 1, 2002. This module automates the monthly interface of
summary-level balances with HUD's Central Accounting and Program System
(HUDCAPS).
26U.S. General Accounting Office, Department of Housing and Urban
Development: Status of Efforts to Implement an Integrated Financial
Management System, GAO-03-447R (Washington, D.C.: Apr. 9, 2003).
acquisition date and cost of its property, plant, and equipment, due to
system limitations.
Therefore, DOD could not provide reliable information for reporting
account balances and computing depreciation. Auditors for two agencies-HUD
and Justice-reported weaknesses in compliance with SFFAS No. 7, Revenue
and Other Financing Sources, which also became effective for fiscal year
1998. For example, auditors reported a material weakness for FHA's budget
execution and fund control. According to the auditors, FHA's financial
systems and processes are not capable of fully monitoring and controlling
budgetary resources. Finally, auditors for three agencies-the Agency for
International Development (AID), the National Aeronautics and Space
Administration (NASA), and the Nuclear Regulatory Commission
(NRC)-reported trouble with implementing SFFAS No. 10, Accounting for
Internal Use Software, which became effective at the beginning of fiscal
year 2001. For example, auditors reported that NASA's policies and
procedures do not specifically address purchasing software as part of a
package of products and services. In their testing, NASA's auditors
identified errors for costs that were originally recorded as expenses, but
instead should have been capitalized as assets.
Managerial cost information is required by the CFO Act of 1990, and since
1998 by a federal accounting standard. Auditors for five agencies reported
problems implementing SFFAS No. 4, Managerial Cost Accounting Concepts and
Standards. For example, auditors for DOL reported that the department has
not developed the capability to routinely report the cost of outputs used
to manage program operations at the operating program and activity levels.
Moreover, DOL does not use managerial cost information for purposes of
performance measurement, planning, budgeting, or forecasting. At DOT,
auditors stated that its agencies, other than the Federal Aviation
Administration (FAA) and the U.S. Coast Guard,27 have begun to identify
requirements for implementing cost accounting systems. DOT's existing
accounting system, DAFIS, does not have the capability to capture full
costs, including direct and indirect costs assigned to DOT programs. The
Secretary recently advised OMB that as the remaining DOT
27FAA has efforts underway to implement a cost accounting system as
required by the Federal Aviation Reauthorization Act of 1996 (Pub. L. No.
104-264, 110 Stat. 3213, 3248 (1996)). The U.S. Coast Guard has a cost
accounting system used for determining vessel documentation user fees.
agencies migrate to Delphi, DOT's new core financial system, Delphi will
provide them with enhanced cost accounting capabilities.
Managerial cost information is critical for implementing the PMA.
According to the PMA, the accomplishment of the other four crosscutting
initiatives28 will matter little without the integration of agency budgets
with performance. Although the lack of a consistent information and
reporting framework for performance, budgeting, and accounting may obscure
how well government programs are performing as well as inhibit
comparisons, no one presentation can meet all users' needs. Any framework
should support an understanding of the links between performance,
budgeting, and accounting information measured and reported for different
purposes. However, even the most meaningful links between performance
results and resources consumed are only as good as the underlying data.
Moreover, this link between resources consumed and performance results is
necessary to make public-private competition decisions as part of
competitive sourcing. Therefore, agencies must address long-standing
problems within their financial systems. As agencies implement and upgrade
their financial management systems, opportunities exist for developing
cost management information as an integral part of these systems to
provide important information that is timely, reliable, and useful.
As we recently reported,29 DOD's continuing inability to capture and
report the full cost of its programs represents one of the most
significant impediments facing the department. DOD does not have the
systems and processes in place to capture the required cost information
from the hundreds of millions of transactions it processes each year.
Lacking complete and accurate overall life-cycle cost information for
weapons systems impairs DOD's and congressional decisionmakers' ability to
make fully informed decisions about which weapons, or how many, to buy.
DOD has acknowledged that the lack of a cost accounting system is its
largest impediment to controlling and managing weapon systems costs.
28The other four crosscutting initiatives are improved financial
performance, strategic human capital management, competitive sourcing, and
expanded electronic government.
29GAO-03-931T.
Weak Security Controls over Information Systems
Information security weaknesses are one of the frequently cited reasons
for noncompliance with FFMIA and are a major concern for federal agencies
and the general public. These weaknesses are placing enormous amounts of
government assets at risk of inadvertent or deliberate misuse, financial
information at risk of unauthorized modification or destruction, sensitive
information at risk of inappropriate disclosure, and critical operations
at risk of disruption. Auditors for all 19 of the agencies reported as
noncompliant with FFMIA identified weaknesses in security controls over
information systems. Unresolved information security weaknesses could
adversely affect the ability of agencies to produce accurate data for
decision making and financial reporting because such weaknesses could
compromise the reliability and availability of data that are recorded in
or transmitted by an agency's financial management system.
General controls are the policies, procedures, and technical controls that
apply to all or a large segment of an entity's information systems and
help ensure their proper operation. The six major areas are (1) security
program management, which provides the framework for ensuring that risks
are understood and that effective controls are selected and properly
implemented, (2) access controls, which ensure that only authorized
individuals can read, alter, or delete data, (3) software development and
change controls, which ensure that only authorized software programs are
implemented, (4) segregation of duties, which reduces the risk that one
individual can independently perform inappropriate actions without
detection, (5) operating systems controls, which protect sensitive
programs that support multiple applications from tampering and misuse, and
(6) service continuity, which ensures that computer-dependent operations
experience no significant disruption. As we discussed in our April 2003
testimony,30 our analyses of audit reports issued from October 2001
through October 2002 for 24 of the largest federal agencies31
30U.S. General Accounting Office, Information Security: Progress Made, But
Challenges Remain to Protect Federal Systems and the Nation's Critical
Infrastructures, GAO-03-564T (Washington, D.C.: Apr. 8, 2003).
31These are the Departments of Agriculture, Commerce, Defense, Education,
Energy, Health and Human Services, Housing and Urban Development,
Interior, Justice, Labor, State, Transportation, Treasury, and Veterans
Affairs, the Environmental Protection Agency, Federal Emergency Management
Agency, General Services Administration, Office of Personnel Management,
National Aeronautics and Space Administration, National Science
Foundation, Nuclear Regulatory Commission, Small Business Administration,
Social Security Administration, and U.S. Agency for International
Development.
continued to show significant weaknesses in federal computer systems that
put critical operations and assets at risk. Weaknesses continued to be
reported in each of the 24 agencies included in our review, and they
covered all six major areas of general controls. Although our analyses
showed that most agencies had significant weaknesses in these six control
areas, weaknesses were most often cited for access controls and security
program management.
Since 1997, GAO has considered information security a governmentwide
high-risk area.32 As shown by our work and work performed by the IGs,
security program management continues to be a widespread problem.
Concerned with reports of significant weaknesses in federal computer
systems that make them vulnerable to attack, the Congress enacted
Government Information Security Reform provisions33 (commonly known as
GISRA) to reduce these risks and provide more effective oversight of
federal information security. GISRA required agencies to implement an
information security program that is founded on a continuing risk
management cycle and largely incorporates existing security policies found
in OMB Circular A-130, Management of Federal Information Resources. GISRA
provided an overall framework for managing information security and
established new annual review, independent evaluation, and reporting
requirements to help ensure agency implementation and both OMB and
congressional oversight.
In its required fiscal year 2002 GISRA report to the Congress, OMB stated
that the federal government had made significant strides in addressing
serious and pervasive information technology security problems, but that
more needed to be done, particularly to address both the governmentwide
weaknesses identified in its fiscal year 2001 report to the Congress and
new challenges.34 Also, OMB reported significant progress in agencies'
information technology security performance, primarily as indicated by
quantitative governmentwide performance measures that OMB required
agencies to disclose beginning with their fiscal year 2002 reports. These
32U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263
(Washington, D.C.: January 2001).
33These provisions are part of the Floyd D. Spence National Defense
Authorization Act for Fiscal Year 2001, Pub. L. No. 106-398, 114 Stat.
1654, 1654A-266 (2000).
34Office of Management and Budget, FY 2002 Report to Congress on Federal
Government Information Security Reform (May 16, 2003).
include measures such as the number of systems that have been assessed for
risk, have an up-to-date security plan, and for which security controls
have been tested.
As discussed in our June 2003 testimony,35 the governmentwide weaknesses
identified by OMB, as well as the limited progress in implementing key
information security requirements, continue to emphasize that, overall,
agencies are not effectively implementing and managing their information
security programs. For example, of the 24 large federal agencies we
reviewed, 11 reported that they had assessed risk for 90 to 100 percent of
their systems for fiscal year 2002, but 8 reported that they had assessed
risk for less than half of their systems.
The information security program, evaluation, and reporting requirements
established by GISRA have been permanently authorized and strengthened
through the recently enacted Federal Information Security Management Act
of 2002 (FISMA).36 In addition, FISMA provisions establish additional
requirements that can assist the agencies in implementing effective
information security programs, help ensure that agency systems incorporate
appropriate controls, and provide information for administration and
congressional oversight. These requirements include the designation and
establishment of specific responsibilities for an agency senior
information security officer, implementation of minimum information
security requirements for agency information and information systems, and
required agency reporting to the Congress.
Agencies' fiscal year 2003 FISMA reports, due to OMB in September 2003,
should provide additional information on the status of agencies' efforts
to implement federal information security requirements. In addition, FISMA
requires each agency to report any significant deficiency in an
information security policy, procedure, or practice relating to financial
management systems as an instance of a lack of substantial compliance
under FFMIA.37
35U.S. General Accounting Office, Information Security: Continued Efforts
Needed to Fully Implement Statutory Requirements, GAO-03-852T (Washington,
D.C.: June 24, 2003).
36Pub. L. No. 107-347, title III, 116 Stat. 2899, 2946 (2002).
3744 U.S.C. 3544(c)(3).
Agency Efforts to Implement New Core Financial Systems
The continuing trend of noncompliance with FFMIA indicates the overall
long-standing poor condition of agency financial systems. Correcting the
systems problems is a difficult challenge for agencies because of the age
and poor condition of their critical financial systems. Some of the
federal government's computer systems were originally designed and
developed years ago and do not meet current systems requirements. These
legacy systems cannot provide reliable financial information for key
governmentwide initiatives, such as integrating budget and performance
information.
Across government, agencies have many efforts underway to implement or
upgrade financial systems to alleviate long-standing weaknesses in
financial management. As we recently reported,38 as of September 30, 2002,
17 agencies advised us that they were planning to or were in the process
of implementing a new core financial system.39 Of these 17 agencies, 11
had selected certified40 software. The other 6 agencies have not reached
the software selection phase of their acquisition process.
38U.S. General Accounting Office, Core Financial Systems at the 24 Chief
Financial Officers Act Agencies, GAO-03-903R (Washington, D.C.: June 27,
2003).
39Core financial systems, as defined by JFMIP, include managing general
ledger, funding, payments, receivables, and certain basic cost functions.
Core financial systems receive data from other financial and feeder
systems-such as acquisition, grant, and human resource and payroll
systems-as well as from direct user input, and provide data for financial
performance measurement and analysis and for financial statement
preparation.
40The Program Management Office, which is managed by JFMIP's Executive
Director with funds provided by the CFO Council agencies, tests vendor
COTS packages and certifies those that meet certain financial management
system requirements for core financial systems.
Implementing a core financial system that has been certified does not
guarantee that these agencies will have financial systems that are
compliant with FFMIA. Certification of core financial systems and testing
vendor COTS packages help ensure that financial management system
requirements and the vendor software remain aligned. One critical factor
affecting FFMIA compliance is the integration of the core financial system
with the agency's administrative41 and programmatic42 systems and the
validity and completeness of data from these systems. Other factors
affecting a COTS core financial system's ability to comply with FFMIA
include how the software package works in the agency's environment,
whether any modifications or customizations have been made to the
software, and the success of converting data from legacy systems to new
systems. As of September 30, 2002, target implementation dates for 16 of
the 17 agencies planning to implement new core financial systems ranged
from fiscal years 2003 to 2008. One agency-DOD-had not yet determined its
target date for full implementation. As shown in figure 2, 3 of the 16
agencies-Agriculture, GSA, and NASA-planned to complete implementation in
fiscal year 2003. Three other agencies-SSA, Commerce, and DOT-planned to
complete their implementations in fiscal year 2004. The Department of
Energy established fiscal year 2005 as its target implementation date and
3 agencies-the departments of State and Veterans Affairs and AID-have
targeted fiscal year 2006 for completion. Moreover, as shown in figure 2,
4 agencies-DOL, HHS, EPA, and HUD- have set fiscal year 2007 as their
implementation target date. Finally, 2 agencies-the Departments of the
Interior and Justice43-projected fiscal year 2008 for completion of their
core financial systems implementation.
41Examples of administrative systems are those common to all agencies such
as budget, acquisition, travel, property, and payroll.
42Programmatic systems are those needed to carry out an agency's mission.
For example, HHS needs a grants management system to carry out its
mission.
43Justice plans a staggered implementation of its new core financial
system in its component agencies with target completion dates ranging from
October 2004 to October 2007.
systems. Nevertheless, it is imperative that agencies adopt leading
practices to help ensure successful systems implementation.
Successful Implementation of Financial Management Systems Is Key for Improved
Financial Reporting
Implementing new financial management systems provides a foundation for
improved financial management, including enhanced financial reporting
capabilities that will help financial managers meet OMB's accelerated
reporting deadlines46 and make better financial management decisions due
to more timely information. Successful implementation of financial
management systems has been a continuous challenge for both federal
agencies and private sector entities. In the past, federal agencies have
experienced setbacks and delays in their implementation processes. These
delays were caused by various factors, including a lack of executive-level
involvement, poor communication between managers and users, and inadequate
project planning. For example, our work at NASA has shown the need for
consistent executive support, communication with all stakeholders, full
identification of user requirements, and adequate planning.
Recent work at NASA illustrates some of the specific problems agencies are
encountering in implementing JFMIP-certified financial systems. In April
2000, NASA began its Integrated Financial Management Program (IFMP), its
third attempt in recent years at modernizing financial processes and
systems. NASA's previous two efforts were eventually abandoned after a
total of 12 years and a reported $180 million in spending. As part of this
third effort, NASA recently implemented a new core financial module that
was expected to provide financial and program managers with timely,
consistent, and reliable cost and performance information for management
decisions. However, earlier this year we reported47 that NASA's core
financial module was not being implemented to accommodate the information
needed by program managers, cost estimators, and the Congress. The need
for ongoing communication between project
46In order to have timely, reliable and useful information OMB has
required agencies to prepare financial statements closer to the end of the
reporting period. Under the accelerated reporting requirements, agency
performance and accountability reports for fiscal year 2004 are due to OMB
by November 15, 2004, just 45 days after the close of the fiscal year.
47U.S. General Accounting Office, Business Modernization: Improvements
Needed in Management of NASA's Integrated Financial Management Program,
GAO-03-507 (Washington, D.C.: Apr. 2003).
managers and systems users is crucial to any successful systems
implementation project. Project managers need to understand the basic
requirements of users, while users should be involved in the project's
planning process. NASA's program officials chose to defer the development
of some functions and related user requirements in order to expedite the
systems implementation process. As a result, the new system will not meet
the needs of some key users who will continue to rely on information from
nonintegrated programs outside of the core financial module, or use other
labor-intensive means, to capture the data they need to manage programs.
NASA has also not followed certain other best practices for acquiring and
implementing its new financial management system. NASA's implementation
plan calls for the system to be constructed using commercial components;
however, NASA has not analyzed the interdependencies of the various
subsystems. When constructing a system from commercial components, it is
essential to understand the features and characteristics of each component
in order to select compatible systems that can be integrated without
having to build and maintain expensive interfaces. By acquiring components
without first understanding their relationships, NASA has increased its
risks of implementing a system that will not optimize mission performance,
and that will cost more and take longer to implement than necessary.
Private sector entities have also encountered a number of challenges and
setbacks when implementing new systems. These challenges have included
competition between internal organizational units, user resistance to the
new systems, and frequent changes in management and to underlying
corporate strategy. Entities are overcoming their challenges because
better tools have been created to monitor and control progress and skilled
project managers with better management processes are being used.
The Standish Group International, Inc.48 (Standish Group) has reported
that the number of successful systems implementation projects in the
private sector is increasing. From 1994 to 2000, successful projects
increased from 28,000 to 78,000. The Standish Group, through its
research,49 has identified 10 project success factors. These factors
include user involvement, executive support, experienced project managers,
firm basic requirements, clear business objectives, minimized scope,
standard software infrastructure, formal methodology, reliable estimates,
and other.50
Also, according to the Standish Group, although no project requires all 10
factors to be successful,51 the more factors that are present in the
project strategy, the higher the chance of a successful implementation. As
discussed above, many of these factors have been challenges for both
private sector and federal entities. By its very nature, the
implementation of a new financial management system is a risky
proposition. Therefore, it is crucial that federal departments and
agencies follow accepted best practices and embrace as many of the key
characteristics for successful implementation projects as possible to help
minimize the risk of failed projects and result in systems that provide
the necessary data for management's needs.
Our executive guide52 on creating value through world-class financial
management describes 11 practices critical for establishing and
maintaining sound financial operations. These practices include
reengineering processes in conjunction with new technology. As a result,
using commercial components such as COTS packages may require significant
changes in the way federal departments conduct their business. According
to the leading finance organizations that formed the basis for our
executive guide, a key to successful implementation of COTS systems is
reengineering business processes to fit the new software applications
48The Standish Group is a well-known research advisory firm that focuses
on mission-critical software applications, management techniques, and
technologies.
49The Standish Group's research is done through focus groups, in-depth
surveys, and extensive interviews with Fortune 500 companies.
50Other includes small milestones, proper planning, competent staff, and
ownership.
51Successful implementation is defined as a project that is completed on
time, on budget, and with all the features and functions originally
specified.
52U.S. General Accounting Office, Executive Guide: Creating Value Through
World-class Financial Management, GAO/AIMD-00-134 (Washington, D.C.: April
2000).
that are based on best practices. Moreover, OMB's former Associate
Director for Information Technology and e-Government has stated that "IT
will not solve management problems-re-engineering processes will."
The conversion of data from an old system to a new system is also
critical. In December 2002, JFMIP issued its White Paper: Financial
Systems Data Conversion - Considerations. The purpose of this JFMIP
document is to raise awareness of financial systems data conversion
considerations to be addressed by financial management executives and
project managers when planning or implementing a new financial management
system. The JFMIP paper addresses (1) key considerations regarding data
conversion and cutover to the new system, (2) best approaches for
completing the data conversion and cutover, and (3) ways to reduce the
risks associated with these approaches.
Status of Governmentwide Financial Management Improvement Efforts
As we have discussed, the goal of FFMIA is for agencies to have timely,
reliable, and accurate information with which to make informed decisions
and to ensure accountability on an ongoing basis. Figure 3 shows the three
levels of the pyramid that result in the end goal, accountability and
useful management information. The bottom level of the pyramid is the
legislative framework that underpins the improvement of the general and
financial management of the federal government. The second level shows the
drivers that build on the legislative requirements and influence agency
actions to meet these requirements. The three drivers are (1)
congressional and other oversight, (2) the activities of the JFMIP
Principals, and (3) the PMA. The third level of the pyramid represents the
key success factors for accountability and meaningful management
information-integrating core and feeder financial systems, producing
reliable financial and performance data for reporting, and ensuring
effective internal control. The result of these three levels, as shown at
the top of the pyramid, is accountability and meaningful management
information needed to assess and improve the government's effectiveness,
financial condition, and operating performance.
Figure 3: Pyramid to Accountability and Useful Management Information
Congressional Oversight
Source: GAO.
Congressional Oversight The leadership demonstrated by the Congress has
been an important catalyst to reforming financial management in the
federal government. As previously discussed, the legislative framework
provided by the CFO Act and FFMIA, among others, produced a solid
foundation to stimulate needed change. For example, in November 2002, the
Congress enacted the Accountability of Tax Dollars Act of 200253 to extend
the financial statement audit requirements for CFO Act agencies to most
executive branch agencies. In addition, there is value in sustained
congressional interest in these issues, as demonstrated by hearings on
federal financial management and reform held over the past several years.
It will be key that the appropriations, budget, authorizing, and oversight
committees hold agency top management accountable for resolving these
problems and that they support improvement efforts. The continued
attention by the
53Pub. L. No. 107-289, 116 Stat. 2049 (2002).
Congress to these issues will be critical to sustaining momentum for
financial management reform.
JFMIP Principals Starting in August 2001, the JFMIP Principals have been
meeting regularly to deliberate and reach agreements focused on financial
management reform issues including (1) defining success measures for
financial performance that go far beyond an unqualified audit opinion,54
(2) significantly accelerating financial statement reporting to improve
timeliness for decision making, and (3) addressing difficult accounting
and reporting issues, including impediments to an audit opinion on the
federal government's consolidated financial statements. This forum has
provided an opportunity to reach decisions on key issues and undertake
strategic activities that reinforce the effectiveness of groups such as
the CFO Council in making progress toward federal financial management. In
fiscal year 2002, the JFMIP Principals continued the series of these
deliberative meetings. Continued personal involvement of the JFMIP
Principals is critical to the full and successful implementation of
federal financial management reform and to providing greater transparency
and accountability in managing federal programs and resources.
President's Management Agenda and the Executive Branch Management
Scorecard
The PMA, being implemented by the administration as an agenda for
improving the management and performance of the federal government,
targets the most apparent deficiencies where the opportunity to improve
performance is the greatest. While FFMIA implementation relates directly
to the improved financial performance initiative, development and
maintenance of FFMIA-compliant systems will also affect the implementation
of the other four initiatives. Furthermore, the modernization of agency
financial management systems, as envisioned by FFMIA, is critical to the
success of all of these initiatives. Notably, OMB is developing a federal
enterprise architecture that will affect the government's ability to make
significant progress across the PMA. For example, as part of the e-gov
initiative, the number of federal payroll providers is being consolidated.
Numerous agencies had targeted their payroll operations for costly
modernization efforts. According to OMB, millions of dollars will be saved
through shared resources and processes
54These success measures include financial management systems that
routinely provide timely, reliable, and useful financial information and
no material control weaknesses or material noncompliance with laws and
regulations as well as FFMIA.
and by modernizing on a cross-agency and governmentwide basis. The
administration's implementation of its Program Assessment Rating Tool
(PART) relates specifically to the PMA initiative of integration of budget
and performance information. Reliable cost data, so crucial to effective
FFMIA implementation, is critical not only for the improved financial
performance and budget and performance integration initiatives, but also
for competitive sourcing. For effective management, this cost information
must not only be timely and reliable, but also both useful and used.
The administration is using the Executive Branch Management Scorecard,
based on governmentwide standards for success, to highlight agencies'
progress in achieving the improvements embodied in the PMA. OMB uses a
grading system of red, yellow, and green to indicate agencies' status in
achieving the standards for success for each of the five crosscutting
initiatives. It also assesses and reports progress using a similar
"stoplight" system.
The focus that the administration's scorecard approach brings to improving
management and performance, including financial management performance, is
certainly a step in the right direction. The value of the scorecard is not
in the scoring per se, but the degree to which the scores lead to
sustained focus and demonstrable improvements. This will depend on
continued efforts to assess progress and maintain accountability to ensure
that the agencies are able to, in fact, improve their performance. It will
be important that there be continuous rigor in the scoring process for
this approach to be credible and effective in providing incentives that
produce lasting results. Also, it is important to recognize that many of
the challenges the federal government faces, such as improving financial
management, are long-standing and complex, and will require sustained
attention.
Closing Comments The primary purpose of FFMIA is to ensure that agency
financial management systems routinely provide reliable, useful, and
timely financial information so that government leaders will be better
positioned to invest resources, reduce costs, oversee programs, and hold
agency managers accountable for the way they run programs. While many
agencies are receiving unqualified opinions on their financial statements,
auditor determinations of FFMIA compliance are lagging behind. To achieve
the financial management improvements envisioned by the CFO Act, FFMIA,
and more recently, the President's Management Agenda, agencies need to
modernize their financial systems to generate reliable, useful, and timely
financial information throughout the year and at year-end. However, as we
have discussed today, agencies are facing significant challenges in
implementing new financial management systems. We are seeing a strong
commitment from the President, the JFMIP Principals, and the Secretaries
of major departments to ensure that these needed modernizations come to
fruition. This commitment is critical to the success of the efforts under
way as well as those still in a formative stage, and must be sustained.
Finally, Mr. Chairman, the leadership demonstrated by you and the members
of this Subcommittee is an important catalyst to reforming financial
management in the federal government. Continued attention to these issues
will be critical to sustaining momentum on financial management reforms.
Mr. Chairman, this concludes my statement. I would be pleased to answer
any questions you or other members of the Subcommittee may have at this
time.
Contacts and For further information about this statement, please contact
Kay L. Daly at (202) 512-9312. Other key contributors to this testimony
include Sandra S.
Acknowledgments Silzer and Bridget A. Skjoldal.
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