Core Financial System Requirements: Checklist for Reviewing	 
Systems under the Federal Financial Management Improvement Act	 
(01-JUL-04, GAO-04-763G).					 
                                                                 
The Federal Financial Management Improvement Act of 1996 (FFMIA) 
requires, among other things, that agencies implement and	 
maintain financial management systems that substantially comply  
with federal financial management system requirements. These	 
requirements are detailed in the Federal Financial Management	 
System Requirements series issued by the Joint Financial	 
Management Improvement Program (JFMIP) and in the guidance issued
by the Office of Management and Budget (OMB): Circular A-127,	 
Financial Management Systems, and the January 4, 2001, Revised	 
Implementation Guidance for the Federal Financial Management	 
Improvement Act (FFMIA) of 1996. 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 revised Core Financial System  
Requirements (JFMIP-SR-02-01, November 2001), to assist (1)	 
financial systems analysts, systems accountants, systems	 
developers, program managers, and others who design, develop,	 
implement, operate, or maintain financial management systems and 
(2) management and auditors in reviewing agency core systems to  
determine if the systems substantially comply with FFMIA.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-763G					        
    ACCNO:   A11168						        
  TITLE:     Core Financial System Requirements: Checklist for	      
Reviewing Systems under the Federal Financial Management	 
Improvement Act 						 
     DATE:   07/01/2004 
  SUBJECT:   Accounting standards				 
	     Auditing procedures				 
	     Auditing standards 				 
	     Federal agency accounting systems			 
	     Financial management systems			 
	     Regulatory agencies				 
	     Systems analysis					 

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GAO-04-763G

                 United States Government Accountability Office

                               GAO Exposure Draft

July 2004

CORE FINANCIAL SYSTEM REQUIREMENTS

     Checklist for Reviewing Systems under the Federal Financial Management
                                Improvement Act

                                       a

GAO-04-763G

______________________________________________________________________________

PREFACE

______________________________________________________________________________

July 2004

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires,
among
other things, that agencies implement and maintain financial management
systems that
substantially comply with federal financial management system
requirements. These
requirements are detailed in the Federal Financial Management System
Requirements
series issued by the Joint Financial Management Improvement Program
(JFMIP) and in
the guidance issued by the Office of Management and Budget (OMB): Circular
A-127,
Financial Management Systems, and the January 4, 2001, Revised
Implementation
Guidance for the Federal Financial Management Improvement Act (FFMIA) of
1996.
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 revised Core
Financial System
Requirements (JFMIP-SR-02-01, November 2001), to assist (1) financial
systems analysts,
systems accountants, systems developers, program managers, and others who
design,
develop, implement, operate, or maintain financial management systems and
(2) management and auditors in reviewing agency core systems to determine
if the
systems substantially comply with FFMIA.

There is no requirement that this checklist be used in assessing core
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 core system and whether the system, as a
whole,
substantially complies with requirements.

This checklist exposure draft is available on the GAO Web site
(http://www.gao.gov)
under "Reports and Testimony," browsing by the topic "Financial
Management." JFMIP's
source document can be downloaded from the JFMIP Web site
(http://www.jfmip.gov)
under "JFMIP Documents" and the subheading "System Requirements."

Please send comments on this exposure draft by August 31, 2004, to McCoy
Williams,
Director, Financial Management and Assurance, U.S. Government
Accountability Office,
441 G Street, N.W., Room 5089, Washington, D.C. 20548.

Jeffrey C. Steinhoff
Managing Director
Financial Management and Assurance

                                    (BLANK)

______________________________________________________________________________

Page

Preface............................................................................................................................
1

Overview
........................................................................................................................6
Authoritative
Guidance........................................................................................
7
How to Use This Checklist
..................................................................................
8

                                           Core Financial System Requirements
    ...................................................................... 10
                                                      Functional Requirements
.......................................................................................
                                                                           13
                                             Core Financial System Management
                   Function............................................... 13
                                 Accounting Classification Management Process
                                       ................................... 13
                                                  Transaction Control Process
      .................................................................... 19

General Ledger Management Function
........................................................... 28
General Ledger Account Definition Process
.......................................... 28
Accruals, Closing, and Consolidation
Process....................................... 30
General Ledger Analysis and Reconciliation Process
........................... 32

Funds Management Function
...........................................................................
33
Budget Preparation Process
..................................................................... 33
Budget Formulation Process
.................................................................... 35
Funds Allocation
Process..........................................................................
37
Budget Execution
Process........................................................................
40
Funds Control Process
..............................................................................
42

Payment Management
Function.......................................................................
55
Payee Information Maintenance
Process................................................ 55
Payment Warehousing Process
................................................................ 59
Payment Execution Process
..................................................................... 66
Payment Confirmation and Follow-up
Process...................................... 76

Receivable Management Function
................................................................... 80
Customer Information Maintenance
Process......................................... 80
Receivable Establishment Process
.......................................................... 82
Debt Management
Process........................................................................
85
Collection Process
.....................................................................................
91

Cost Management Function
..............................................................................
94
Cost Setup and Accumulation
Process.................................................... 94
Cost Recognition Process
.........................................................................
96
Cost Distribution Process
.........................................................................
98
Working Capital and Revolving Fund Process
....................................... 99

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______________________________________________________________________________

Page

Reporting Function
..........................................................................................
101
General Reporting Process
..................................................................... 101
External
Reporting...................................................................................
102
Internal Reporting
....................................................................................
104
Ad Hoc
Query............................................................................................
110

Technical
Requirements.......................................................................................
112
General
Design/Architecture...........................................................................
112

Infrastructure
....................................................................................................
116

User
Interfaces..................................................................................................
118

Interoperability
.................................................................................................
121

Workflow/Messaging........................................................................................
124

Document
Management...................................................................................
126

Internet Access
.................................................................................................
127

Security
..............................................................................................................
128

Operations and Computing
Performance...................................................... 130

Related GAO Products
.............................................................................................
134

Figure 1: Agency Systems Architecture
..................................................................... 6

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______________________________________________________________________________

ACH Automated Clearing House
ALC agency location code
API application program interface
CCD Cash Concentration or Disbursement
CCD+ Cash Concentration or Disbursement Plus Addendum
CCR Central Contractor Registration
C.F.R. Code of Federal Regulations
COTR Contract Officer's Technical Representative
COTS commercial-off-the-shelf
CTX Corporate Trade Exchange
DUNS Data Universal Numbering System
ECS Electronic Certification System
EFT Electronic Funds Transfer
FACTS Federal Agencies Centralized Trial Balance System
FASAB Federal Accounting Standards Advisory Board
FFMIA Federal Financial Management Improvement Act of 1996
FMS Financial Management Service
IPAC Intra-governmental Payment and Collection System
IRS Internal Revenue Service
IT information technology
JFMIP Joint Financial Management Improvement Program
NIST National Institute of Standards and Technology
OMB Office of Management and Budget
PPD Prearranged Payment and Deposit
PPD+ Prearranged Payment and Deposit Plus Addendum
RTN routing transit number
SGL U.S. Government Standard General Ledger
SFFAS Statements of Federal Financial Accounting Standards
TAS treasury account symbol
TAFS treasury account fund symbol
TFM Treasury Financial Manual
TIN taxpayer identification number
U.S.C. United States Code
XML Extensible Markup Language

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______________________________________________________________________________

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires,
among other things, that agencies implement and maintain financial
management systems that substantially comply with federal financial
management system requirements. These requirements are detailed in the
Federal Financial Management System Requirements series issued by the
Joint Financial Management Improvement Program (JFMIP)1 and in Circular
A-127, Financial Management Systems, issued by the Office of Management
and Budget (OMB). The JFMIP requirements document describes the federal
financial system architecture as consisting of (1) core financial systems;
(2) other financial and mixed systems, not all of which are applicable to
all agencies; (3) shared systems; and (4) departmental executive
information systems (systems to provide management information to all
levels of management).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

1JFMIP is a joint undertaking of the Office of Management and Budget
(OMB), GAO, the Department of the 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. JFMIP was authorized by the Budget and Accounting
Procedures Act of 1950 (subsequently codified at 31 U.S.C. S: 3511 (d)).
The Civil Service Commission, now OPM, joined JFMIP in 1966. 2JFMIP has
also issued the Framework for Federal Financial Management Systems
(JFMIP-SR-01-04, April 2004), which is the foundation document for the
JFMIP Financial Management System Requirements that sets forth the vision,
desired capabilities, performance outcomes, environment, and other
attributes that all federal financial management systems must be designed
to support.

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______________________________________________________________________________

To date, JFMIP has issued 13 of the 15 functional requirements shown in
figure 1.3 We are issuing this checklist, which reflects JFMIP's revised
Core Financial System Requirements (JFMIP-SR-02-01, November 2001) and the
Addendum to Core Financial System Requirements (March 2004), to assist (1)
financial systems analysts, systems accountants, systems developers,
program managers, and others who design, develop, implement, operate, or
maintain financial management systems and (2) management and auditors in
reviewing agency core systems to determine if the systems substantially
comply with FFMIA.

This checklist is not a requirement. It is provided as a tool for use by
experienced staff. This checklist; the JFMIP source document, Core
Financial System Requirements (JFMIP-SR-02-01, November 2001); OMB
Circular A-127, Financial Management Systems; and OMB's Revised
Implementation Guidance for the Federal Financial Management Improvement
Act (FFMIA), 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 core financial system and whether the
system, as a whole, substantially complies with requirements.

Authoritative Guidance

OMB Circular A-127, Financial Management Systems, and OMB's January 4,
2001, Revised Implementation Guidance for the Federal Financial Management
Improvement Act provide the guidance for assessing compliance with FFMIA
requirements. The OMB guidance identifies various criteria that agency
systems must meet to substantially comply with these requirements. One set
of criteria listed in the OMB guidance is the JFMIP system requirements
series.

The source of all the questions in this checklist is the JFMIP Core
Financial System Requirements (JFMIP-SR-02-01, November 2001) and the
Addendum to Core Financial System Requirements (March 2004). The JFMIP
document and the addendum represent the latest update to the core document
first issued in January 1988. These updates reflect recent changes in laws
and regulations and in governmentwide reporting systems, such as the
Department of the Treasury's Federal Agencies Centralized Trial Balance
System (FACTS) II, and the OMB policy requiring agencies to use the
Intragovernmental Transaction Exchange

3Thus far, the series includes the (1) System Requirements for Managerial
Cost Accounting (February 1998); (2) Human Resources and Payroll System
Requirements (April 1999); (3) Direct Loan System Requirements (June
1999); (4) Travel System Requirements (July 1999); (5) Seized Property and
Forfeited Assets System Requirements (December 1999); (6) Guaranteed Loan
System Requirements (March 2000); (7) Grant Financial System Requirements
(June 2000); (8) Property Management System Requirements (October 2000);
(9) Benefit System Requirements (September 2001); (10) Core Financial
System Requirements (November 2001), which supercedes the 1999 Core
Financial System Requirements (February 1999); (11) Acquisitions Financial
System Requirements (June 2002); (12) Revenue System Requirements (January
2003); and (13) Inventory, Supplies, and Materials System Requirements
(August 2003), which supercedes the 1995 Inventory System Requirements
(June 1995). Functional requirements for budget formulation and insurance
claims systems have not yet been issued.

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______________________________________________________________________________

Portal for executing certain types of financial transactions. The updates
also clarify some existing requirements, delete redundant or outdated
requirements, incorporate value-added requirements, change the priority
(i.e., mandatory or value added) of certain requirements, and add new
requirements to reflect the current needs of federal agencies.

The JFMIP Core Financial Systems Requirements document is the basis for
evaluating core financial system software for compliance with JFMIP
requirements. It is done through a testing process that links test
scenarios to the JFMIP requirements. JFMIP tests commercial software
functionality against these requirements and qualifies the software as
meeting mandatory requirements. JFMIP also uses this process to test
government agency software compliance for those agencies that provide
accounting systems to other government agencies on a cross-service
agreement.

The 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, regulations, directives, or judicial decisions. Mandatory
requirements are those against which agency heads are to evaluate their
systems to determine the systems' substantial compliance with FFMIA. These
requirements apply to existing systems in operation and new systems
planned or under development. The checklist uses "M" immediately following
the question to indicate a mandatory system requirement.

The value-added requirements describe optional features or characteristics
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 valueadded 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 the agency heads and
inspectors general with a means for determining whether their agencies'
financial management systems substantially comply with federal financial
management system requirements. Agencies can use this checklist as a tool
to help determine compliance with federal financial management system
requirements as well as to assist in their annual reporting on such
compliance as required by 31 U.S.C. S: 3512(d).

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______________________________________________________________________________

Completing this checklist will allow agencies to systematically determine
whether specific systems requirements are being met. In determining
compliance with FFMIA requirements, agencies should assess the results of
the completed checklist based on the core 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 "N/A." Use
the third column to explain your answer. A "Yes" answer should indicate
that the agency's core 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 core 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 explanation4 and, where
applicable, a reference to any related supporting documentation.
Cost-benefit studies or support for 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
core financial system and the extent to which the "No" answers inhibit the
entire core financial system from achieving compliance. Certain questions
within the checklist may not be applicable to the agency. Answer these
question(s) with "N/A" and provide an appropriate explanation in the third
column.

This checklist is designed to capture the JFMIP requirements in a format
that can be used to easily determine the JFMIP requirements that are
applicable to federal financial management systems. The JFMIP requirements
form the foundation for a system evaluation effort, and agencies must
determine and document the agencyspecific requirements that must be
developed to best meet their needs while ensuring that the JFMIP
requirements are fulfilled. This is consistent with how the JFMIP
requirements should be used in an agency's effort to develop or implement
a financial management system.

Moreover, systems requirements continually evolve as new laws and
regulations are promulgated. Because there may be a time lag between the
issuance of new laws and regulations and when the JFMIP systems
requirements documents are updated, this checklist may also not include
all relevant laws and regulations that should be considered when
evaluating a system. Therefore, consideration must be given to identifying
any changes in laws and regulations that could impact the requirements
included in this checklist.

4For example, the agency is working on modifying or implementing its core
financial system to have the capability available in subsequent years;
management believes the capability is not cost-effective and will not
enhance the core financial system's ability to manage operations.

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______________________________________________________________________________

Government core financial systems, as an integral component of the federal
agency systems architecture (see fig. 1), are relied on to control and
support the key financial management functions of an agency. The core
financial system receives data from other financial and mixed systems and
from direct user input, and provides data and supports processing for
other systems. JFMIP's Core Financial System Requirements document
provides functional requirements for financial managers, program managers,
and others to control and account for federal programs as defined in
governmentwide statutes, regulations, and guidelines. It is divided into
two major sections, "functional requirements" and "technical
requirements," which are described below.

o  	Functional requirements have been established to provide the basic
information and control needed to carry out financial management
functions; manage the financial operations of an agency; and report on the
agency's financial status to central agencies, Congress, and the public.
This includes data needed to prepare the principal financial statements
for federal agencies in accordance with OMB Bulletin No. 01-09, Form and
Content of Agency Financial Statements. The major functions supported by a
core financial system are discussed below:

1. 	Core financial system management consists of the processes necessary
to maintain the financial system in a manner that is consistent with
established financial management laws, regulations, and policy. This
function sets the framework for all other core financial system functions.

2. 	General ledger management is the central function of the core
financial system. The general ledger is the highest level of summarization
and must maintain account balances by the accounting classification
elements established in the core financial system management function.

3. 	Funds management is the function that ensures that the agency does not
obligate or disburse funds in excess of those appropriated or authorized.

4. 	Payment management is the function that provides appropriate control
over all payments made by or on behalf of the agency.

5. 	Receivable management is the function that supports activities
associated with recognizing and recording debts due to the government,
performing follow-up actions to collect on these debts, and recording
agency cash receipts.

6. 	Cost management is the function that attempts to measure the total
cost and revenue of federal programs and their various elements,
activities, and outputs.

7. 	Reporting is the function that provides timely and useful financial
information to support management's fiduciary role, budget formulation and
execution functions, fiscal management of program delivery and program
decision making, and internal and external reporting requirements.

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______________________________________________________________________________

o  	Technical requirements have been established to help ensure that a
core financial system is capable of meeting a wide variety of workload
processing demands; provide transaction processing integrity and general
operating reliability; incorporate standard installation, configuration,
and operating procedures; and do not conflict with other
administrative/program systems or other agency-established information
technology (IT) standards. The JFMIP source document categorizes the
technical requirements as (1) general design/architecture, (2)
infrastructure, (3) user interfaces, (4) interoperability, (5)
workflow/messaging, (6) document management, (7) Internet access, (8)
security, and (9) operations and computing performance.

All of the checklist questions come from the JFMIP source document,
JFMIP-SR02-02, November 2001, and the March 2004 Addendum. Page number
references follow each of the questions. It should be noted that not all
questions will 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," which defines terms used,
along with OMB Circular A-127, Financial Management Systems, and OMB's
Revised Implementation Guidance for the Federal Financial Management
Improvement Act (FFMIA), issued January 4, 2001, will help ensure that the
user is aware of the background information necessary to fully understand
the questions.

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                                    (BLANK)

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5The core financial system management function ensures that the capability
exists for capturing, classifying,
processing, storing, and retrieving the financial data federal agencies
use in their daily operations. It
establishes the reporting entity and framework for ensuring that data are
shared among components of an
agency's single integrated financial management system. This function also
ensures that transactions are
processed in a uniform and consistent manner.
6The accounting classification is a subset of the agency financial
information classification structure, which
also includes financially related personnel information, performance
measurement information, and other
financial information needed by the agency. It provides the means for
categorizing financial information along
several dimensions as needed to support financial management and reporting
functions. The data elements a
particular agency includes in its accounting classification will depend on
data aggregation requirements for
preparation of financial statements under the Chief Financial Officers
Act, the appropriation structure, and
other reporting and management needs of the agency.
7Unless otherwise indicated, page number references in the checklist are
to JFMIP-SR-02-01.

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8For example, Financial Management Service (FMS) 224, Statement of
Transactions.

9For example, categories could be rental income, sales by product type,
and income by type of service
performed.
10Examples of methods include entering "shorthand codes," using a keyboard
function to look up additional
elements, "clicking" on a "pop-up menu," and scanning a bar code.

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11The transaction control process defines, maintains, and executes the
posting and editing rules for
transactions that are processed in the core financial system. The core
financial system must be able to
process and record transactions originally entered into it as well as
transactions originating in other
systems. In order to provide the basis for central financial control, the
core system must track such
transactions and related information. The transaction control process is
further categorized as transaction
definition and processing activities and audit trail activities.
12SGL accounting transactions typically update multiple budgetary and
proprietary accounts based on a
single accounting event. The core financial system must ensure that
transactions are controlled properly to
provide reasonable assurance that the recording, processing, and reporting
of financial data are properly
performed and that the completeness and accuracy of authorized
transactions are ensured.

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13The process of defining posting rules can be accomplished in a variety
of ways, including, but not limited to, using transaction codes, screen
"templates," and derivation rules. 14For example, a budget object class
code value is not necessarily needed when recording depreciation expense.

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15This capability will be used in the liquidation of various documents,
such as commitments, obligations, undelivered orders, payables,
receivables, and advances, upon the processing of subsequent related
transactions (e.g., liquidate an obligation upon entry of the related
receiving report). 16This is to include transactions entered directly to
the core system and those received from interfaced modules or systems.

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17This is to include transactions entered directly to the core system and
those received from interfaced modules or systems.

18For example, prevent the use of the same unique transaction
identification number (e.g., document
number).
19For example, fields pertaining to TAS/TAFS, object class, vendor code,
and organization.

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20Adequate audit trails are critical to providing support for transactions
and balances maintained by the core
financial system. While audit trails are essential to auditors and system
evaluators, they are also necessary
for day-to-day operation of the system. For example, they allow for the
detection and systematic correction
of errors.
21The initial source may be source documents, transactions originating
from other systems (e.g., feeder
systems), or internal system generated transactions.
22Examples of reasons to select items are payment certification and
financial statement audits.

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23The general ledger account definition process establishes the general
ledger account structure for the agency consistent with the SGL and
establishes the transaction edit and posting rules to record financial
events.

24For example, is the user able to add or modify valid values within an
existing attribute domain?

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25This process creates accrual transactions (adjusting) and closing
entries needed at the end of a period (month or year) for reporting
purposes. It also controls and executes period-end system processes needed
by the system to open a new reporting period, such as rolling forward
account balances or reversing certain year-end entries. This process
supports the preparation of consolidated financial statements by
identifying information needed in that process.

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26This process supports the control functions of the SGL. The core
financial system must provide information to use in determining that
balances in the general ledger control accounts agree with more detailed
subsidiary accounts and for reconciling system balances with financial
information contained in reports from Treasury and other agencies.

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27The funds management function must support agency policies on internal
funds allocation methods and
controls. An agency will likely have many other systems in addition to the
core financial system that affect
funds management. For example, procurement and travel systems generate
documents that commit and
obligate funds. These systems typically access the funds availability
editing activity before allowing an
obligation to be incurred, such as when entering into a contract. However,
in some cases, such as payroll,
this may not be practical.
28Budget preparation is the process of establishing initial agency
operating/financial plans and updating
them as necessary throughout the fiscal year. An operating/financial plan
is a blueprint for using financial
resources during any given fiscal period or series of periods. The
function includes reporting on the use of
resources against these plans throughout the year.

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29Budget formulation is the process of assembling estimates for the
upcoming fiscal year for transmittal to OMB and the congressional
appropriations committees, preparing justification materials to support
those estimates, and defending those estimates formally (at OMB and
congressional hearings) and informally (through staff contacts with these
entities).

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30The funds allocation process records an agency's budgetary resources and
supports the establishment of
budgetary limitations at each of the levels required within the agency
(e.g., apportionments and
allocations). The higher levels, such as appropriation, apportionment, and
allotment, have the weight of
legal authority behind the limitations. Lower levels of control are
generally used for internal management
purposes.
31Pub. L. No. 101-510.

32OMB Circular A-11, Part 4, issued in June 2002 and revised in May and
July of 2003, rescinded OMB Circular A-34, Instructions in Budget
Execution.

33Used to support the federal budget process, the OMB MAX Budget
Information System is used to collect, validate, analyze, model, and
publish information. Perhaps the most visible end product of the MAX
system is the Budget of the United States Government, also known as the
President's budget.

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34The budget execution process is the most detailed level of an agency's
funds control and consists of
processes needed to ensure that the agency's funds control systems are
fully supported by its accounting
systems. It also consists of processes needed to track an agency's budget
authority and manage prior-year
funds in the current year. Allotment systems should be designed so that
responsibility for budget control is
placed at the highest practical organizational level consistent with
effective and efficient management and
control.
35There must be at least five organizational levels.

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36This process records transactions affecting the resources and status
accounts in the budgetary section of
the SGL. It also provides appropriate warnings and controls to ensure that
budgetary limitations are not
exceeded. The funds control process consists of (1) funds availability
editing, (2) commitments,
(3) obligations, and (4) analysis.
37This activity verifies that sufficient funds are available at the
various control levels specified in the funds
allocation process for each processed transaction that may affect
available fund balances. If sufficient funds
are not available, notification is provided so that appropriate action may
be taken.

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38This is to include transactions entered directly to the core system and
those received from interfaced modules or systems.

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39Commitments are an optional stage of fund reservations prior to the
establishment of an obligation. This activity records commitment
documents, such as requisitions. Commitments can be a useful tool in funds
management by helping users to anticipate future procurements. They should
be used when helpful to an agency's management process, but are not
necessary, or even appropriate, for all situations. However, the core
financial management system must provide the capability to use this stage
of funds control.

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40OMB Circular A-11 defines an obligation as a binding agreement that will
result in outlays, immediately or in the future. Budgetary resources must
be available before obligations can be incurred legally. Examples are
amounts of orders placed, contracts awarded, services received, and
similar transactions that will require payments during the same or a
future period. Such amounts include outlays for which obligations had not
been previously recorded and reflect adjustments for differences between
obligations previously recorded and actual outlays to liquidate those
obligations.

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41The analysis activity provides information necessary to support analysis
of the funds management
function. It provides information on funds availability at the levels
defined and compares data in the funds
management function to data in other functions to ensure consistency.
42The required accounting classification elements are listed in question
one under the accounting
classification management process within the core financial management
system function.

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43For example, querying on a purchase order would provide any amendments
to purchase orders, receiving reports, requisitions, and invoices;
querying on a receivable would provide any associated cash receipts.

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44These requirements apply to all payments processed through the core
system. Depending on an agency's system architecture, specific activities
performed relating to payments may be supported by other systems that
provide transaction data to the core financial system for control and
management purposes. For example, payroll systems usually trigger the
actual disbursement process to pay employees through direct deposit or by
check, and send only the expense and disbursement information to the core
financial system for recording by the general ledger, funds control, and
cost management processes. Likewise, large loan and grant programs might
be supported by systems that maintain their own detailed information on
payees and payments and send transaction data to the core financial
system. 45The term "payee" is used here to include any entity to which
disbursement may be made, for example, individuals and organizations
providing goods and services, employees, grant recipients, loan
recipients, and other government agencies. In an integrated system, payee
information needed to make payments should be coordinated with information
needed for other purposes and in other systems.

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46The mandatory payee information is detailed in question 189. 47The
mandatory data fields are detailed in question 189.

48The payment warehousing process recognizes and records payments due to
another entity in the near term. These payments may be due for any of
several reasons, for example, as a result of receiving goods and services
in accordance with contract terms, under a loan or grant agreement, as an
advance payment for goods or services to be provided in the future, or as
a progress payment under a construction contract.

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49For example, purchase order number or reimbursable agreement number and
the ALC. 50For example, Online Payment and Collection System or
Intra-governmental Payment and Collection System.

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51The payment execution process supports activities required to make a
payment that was warehoused or to record a payment made by another system.

52An EFT could occur via Automated Clearing House or wire, for example.

53Currently, TFM prescribed limitations are up to 14 lines of 55
characters each for check payment and up to
9,999 lines of 80 characters each for CTX payment.
54CTX (820 or Flat File), CCD, CCD+, PPD, and PPD+.
55The various media include telecommunications, tape, direct entry to
Electronic Certification System
(ECS), and third-party upload through ECS.

56For example, by agencies that have their own disbursing authority.

57For example, purchase order number, reimbursable agreement number, and
ALC. 58Reimbursable work can result in this type of transaction with
appropriate authority.

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59For example, when making benefit payments to recipients.

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60The payment confirmation and follow-up process confirms that
disbursements were made as anticipated and supports inquiries from vendors
regarding payments and reporting requirements relating to the payment
management function.

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61Such as IRS Form 1099-INT, Form 1099-MISC, Form 1099-C, and Form 1099-G.
62For example, when payment to a sole proprietor for services performed
(not including cost of merchandise) exceeds a specified dollar amount
(e.g., $600), the system would produce a Form 1099-MISC.

63That is, the Government On-line Accounting Link System Regional Finance
Center Agency Link or its successor.

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64Receivables are established to account for amounts due from others as
the result of performance of services by the agency, delivery of goods
sold, the passage of time (e.g., interest earned); loans made to others
that must be repaid; or other actions. Receivables are accounted for as
assets until funds are collected or are determined to be uncollectible in
whole or in part. Additionally, some receipts may be collected without the
prior establishment of a receivable, as in the case of goods sold for
cash. Depending on an agency's system architecture, servicing and
collection activities for some receivables may be supported by other
systems that provide data to the core financial system. This would be
particularly appropriate for receivables resulting from large programs
with complex supporting data requirements, such as loan programs, grant
programs, or fee-for-service programs. Servicing and collection for
receivables with simpler requirements for supporting data, such as those
resulting from erroneous payments, may be supported directly by the core
financial system with no support by other systems. 65The word "customer"
is used here to include any entity that owes a debt to the agency,
including contractors, employees, grantees, loan recipients, and other
government agencies. Agency payees, or vendors, as defined in the payment
management function section, may become customers of the agency, in the
event that duplicate or overpayments occur. The customer information
maintenance process involves the maintenance of customer information
(name, address, etc.), identification of the type of customer from which
collection is due, and the recording of trading partner codes used in the
elimination of intragovernmental activity from financial statements. The
process ensures that customer TINs are captured in order to report overdue
receivables for potential offset and to provide for IRS Form 1099
reporting of debts written off.

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66The receivable establishment process supports activities to record
receivables in the system as they are
recognized and to produce bills for amounts due to the agency.
67Bases used for billing may include (1) percentage of reimbursable
obligations, accrued expenditures, or
costs, using data recorded by the cost accumulation function; (2) fee
schedules for goods or services
provided; and (3) payment schedules or other agreements with other
entities.

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68The debt management process involves the maintenance of account
information on individual accounts receivable. The process supports
activities to age receivables, calculate interest and record penalties and
administrative charges on overdue debt, pursue collection of amounts due,
liquidate receivables, record adjustments to receivables, maintain a
proper allowance for uncollectible amounts, and record write-offs.

69For example, $600 or more.

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70The collections process supports activities to record the receipt of
funds either by currency (e.g., cash or
EFT) or check and the deposit of such funds in accordance with Treasury
and agency regulations. The
process also provides for the receipt of payment offset information from
Treasury and its application to the
appropriate accounts receivable.
71For example, upon the refund of erroneous payments.

72For example, outstanding accounts receivable, credit memorandum, and
open advances. 73A Treasury system used to manage and monitor the
collection of government revenues and report the balances to federal
agencies.

74The level of sophistication of the cost management function needed by an
agency depends on the
requirements of the agency and the operational nature of the programs
involved. For example, if an
agency's primary mission is to produce a product or service for sale, the
costing function typically will be
accomplished in the managerial cost accounting system that is integrated
with the core financial system.
Programs with less crucial cost information needs might perform cost
management functions by analytical
or sampling methods. However, in any core system, certain basic functions
must be present. The cost
management function consists of (1) cost setup and accumulation, (2) cost
recognition, (3) cost
distribution, and (4) working capital and revolving fund.
75The cost setup and accumulation process identifies and tracks cost data
associated with the specific cost
objects required by management. This process provides for the
establishment of identifiers for the desired
cost objects in the processes, systems, and applications that make up the
accounting system, and for the
subsequent collection of cost data. A cost object is any activity, output,
outcome, or item whose cost and
revenue are to be measured, such as organizational units, programs,
projects, activities, targeted outputs,
specific contracts, specific customers, and work orders.
76Full cost includes support costs provided by other responsibility
segments, both internal and external;
identifiable support costs provided by other government agencies, such as
pension and other retirement
benefits; unfunded costs, such as accrued annual leave, that accrue in the
current reporting period;
depreciation expense; and amortization costs.

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77Recognition of the effects of transactions in financial systems is
fundamental to the accounting process. The recognition process determines
when the results of an event are to be included in financial statements
and ensures that the effects of similar events and transactions are
accounted for consistently within the federal government.

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78The managerial cost accounting concepts and standards contained in SFFAS
No. 4 are aimed at providing
reliable and timely information on the full cost of programs, their
activities, and outputs. The information is
to be used by stakeholders, executives, and managers in making decisions
about allocating resources,
authorizing and modifying programs, and evaluating program performance.
Program managers can also use
the cost information for making managerial decisions to improve operating
efficiency. Ultimately, the
effectiveness of a cost management program lies in the way managers use
the cost information asked for
and reported to them.
79Such as income statements and status of funds reports.
80For example, bills generated for customers in the receivables system
should match customer status
reports generated by the cost management system for the same periods.

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81Agencies may elect to use revolving funds, which include working capital
funds and franchise funds, for
their organizations. These funds require separate legislation and have
charters that focus on specific
purposes. Such charters have the potential to make program management much
more flexible by lifting
apportionment controls while adding operational safeguards. If an agency
uses a revolving fund, the core
financial system must be able to track service-level agreements, verify
funds availability, bill customers, and
measure costs.
82For example, contracts, work orders, projects, or reimbursable
agreements.
83For example, the ability to link the costs of a set of related projects
for a particular customer on one
report.

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84Information maintained by the core financial system must be provided in
a variety of formats to users according to their needs. Methods of
providing information include online inquiries, extractable data files,
and hard copy reports. These requirements could be satisfied by either
application software that is part of the core financial system,
generalized reporting/inquiry software that works with a variety of
applications, or a combination of both. The reporting function consists of
(1) general reporting process, (2) external reporting process, (3)
internal reporting process, and (4) ad hoc query process. 85Complete,
reliable, consistent, timely, and useful financial management information
on operations enables central management agencies, individual operating
agencies, divisions, bureaus, and other subunits to (1) carry out their
fiduciary responsibilities; (2) deter fraud, waste, and abuse of
resources; and (3) facilitate efficient and effective delivery of programs
by relating financial consequences to program performance. 86For example,
individual or hierarchical organization code, or project code.

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87See the FACTS II Client Bulk Users Guide for examples.
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  88That is, separate amounts whenever there is more than one attribute domain
                          value within an SGL account.

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89While requirements associated with standard internal and external
reporting are based on clearly defined financial management information
needs, ad hoc query requirements are general in nature. The ability of an
FMS package to provide for flexible data access is critical to enabling
effective agency, program, and financial management in the face of change.

90Technical requirements help ensure that a core financial system (1) is
capable of meeting a wide variety of workload processing demands; (2)
provides transaction processing integrity and general operating
reliability; (3) uses standard procedures for installation, configuration,
and operations; and (4) does not conflict with other administrative or
program systems or other agency established IT standards.

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91The vendor is also required to identify products needed to meet any
technical and functional requirement that must be acquired separately by
the agency.

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92Technical user interface requirements specify how agency users and
operators interact with the core financial system.

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93Referred to as section 508 of the Rehabilitation Act in JFMIP document.

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94Financial transactions can be originated using external, feeder
applications. Typically, these feeders are considered legacy systems and
are based on older computing technologies. 95For example,
Intragovernmental Transaction Exchange and IPAC systems. 96For example,
the financial portion of mixed program systems, electronic data
interchange translators, and modules such as travel or payroll.

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97That is, provide two-way interface support.

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98Workflow/messaging includes technical requirements that collectively
define how a core financial system
automatically manages document processing and notifies agency staff of
pending work (e.g.,
review/approval of pending accounting documents).
99That is, notification of accounts payable office for invoices warehoused
over 30 days with no matching
receiving report.

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100Document management includes technical requirements that define how the
core financial system is to
store and retrieve electronically formatted documents.
101For example, signed contracts, purchase orders, and vendor invoices.

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102Technical requirements relating to Internet access represent a
specialized infrastructure subset. These
requirements generally define user connectivity options.
103For example, Web-based collections via credit card.

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104This technical category defines internal and external access controls.
105For example, minimum length and use of alpha, numeric, and special
characters.

106For example, to modules, transactions, and approval authorities. 107For
example, record, create, read, update, and delete. 108For example, payable
technician.

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Core Financial System Requirements
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109For example, backups, nightly interface processing, core general ledger
posting, table updates, standard reporting,
and systems assurance.
110For example, general ledger records, documents, transactions, lines,
and vendor records.

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Related GAO Products

These related products address two main categories: internal control and
financial management systems. We have developed these guidelines and tools
to assist agencies in improving or maintaining effective operations and
financial management.

Internal Control

Maintaining Effective Control Over Employee Time and Attendance Reporting.
GAO-03-352G. Washington, D.C.: January 2003.

Internal Control Management and Evaluation Tool. GAO-01-1008G. Washington,
D.C.: August 2001.

Determining Performance and Accountability Challenges and High Risks.
GAO-01-159SP. Washington, D.C.: November 2000.

Streamlining the Payment Process While Maintaining Effective Internal
Control. GAO/AIMD-00-21.3.2. Washington, D.C.: May 2000.

Standards for Internal Control in the Federal
Government.GAO/AIMD-0021.3.1. Washington, D.C.: November 1999.

                    Financial Management Systems Checklists

Acquisition/Financial Systems Interface Requirements. GAO-04-650G.
Washington, D.C.: June 2004.

Benefit System Requirements. GAO-0422G. Washington, D.C.: October 2003.

Property Management Systems Requirements. GAO-02-171G. Washington, D.C.:
December 2001.

Grant Financial System Requirements. GAO-01-911G. Washington, D.C.:
September 2001.

Guaranteed Loan System Requirements. GAO-01-371G. Washington, D.C.: March
2001.

Seized Property and Forfeited Assets Requirements. GAO-01-99G. Washington,
D.C.: October 2000.

Inventory System. GAO/AIMD-9821.2.4. Washington, D.C.: May 1998.

Human Resources and Payroll Systems Requirements. GAO/AIMD-0021.2.3.
Washington, D.C.: March 2000.

System Requirements for Managerial Cost Accounting. GAO/AIMD-99-21.2.9.
Washington, D.C.: January 1999.

Travel System Requirements.

GAO/AIMD-00-21.2.8. Washington, D.C.: May 2000.

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