Feds stuck in financial bog

GAO: Despite modernization efforts, clean audits could be a decade away

"2002 Financial Report of the United States Government"

The federal government’s continuing struggle to provide clean audits will likely continue for at least another decade as the slow process of modernizing financial management systems inches forward, according to experts who testified before the House Government Reform Committee’s Government Efficiency and Financial Management Subcommittee earlier this month.

The financial management modernization program, part of the Bush administration’s management agenda, seeks to provide a single, integrated system that would allow the financial records of the entire government to be readily auditable, thereby providing agency officials with real-time data for making management decisions.

Each year, the General Accounting Office audits the financial statements of 24 federal agencies and attempts to form a view of the overall state of federal finances.

"Our progress in developing a financial management system could erode if the executive branch and the Congress do not continue to be dually committed," said U.S. Comptroller General David Walker.

For the sixth consecutive year, GAO was unable to render an opinion on the federal government’s overall financial state. Officials reported that they did not have the necessary data to reach a conclusion. Those "significant material deficiencies" affected the financial statements and the management of government operations.

The federal government failed its audit largely because of three agencies: the Defense Department, the Small Business Administration and the U.S. Agency for International Development, all of which failed to receive clean reviews this year. "GAO points out in its audit report...that the financial management problems at DOD are ‘pervasive, complex, long-standing and deeply rooted in virtually all business operations throughout the department,’ " said Rep. Todd Platts (R-Pa.), the subcommittee’s chairman.

Some agencies show progress in terms of having a financial management system in place, but the laggards are falling further behind, Walker said. GAO officials hope that a complete and comprehensive audit of the entire federal government can be completed within a decade, he said.

"I am four and a half years into my 15-year term, and I hope and expect to have a clean opinion by the end of my term," Walker said.

Topping Walker’s list of financial problems is DOD officials’ inability to get a handle on the department’s financial situation and the government’s inability to reconcile intragovernmental activity and balances and prepare consolidated financial statements.

Linda Springer, controller of the Office of Federal Financial Management at the Office of Management and Budget, said of the 21 agencies that received clean audits, only one — the National Science Foundation — has received a score of "green" on the financial management portion of the Bush administration’s score card.

Two other agencies — the Social Security Administration and the Environmental Protection Agency — are "knocking on the door" of having a clean bill of financial health, Springer said.

"Seventeen of 24 agencies are undergoing significant financial management modernization efforts right now, and there is $1.5 billion requested for financial management efforts in the [fiscal 2004] budget," she said. "The solutions span a variety of agencies, and we need to find the joint efforts so we don’t have redundant investments in financial management programs."

Springer said that even when DOD’s financial management enterprise architecture is in place, it will probably be years before GAO will be able to audit the department’s books. DOD officials have noted that the financial management architecture is the first step toward fixing the department’s financial mess. The next steps involve implementing systems that conform to that architecture.

Donald Hammond, fiscal assistant secretary of the Treasury Department, said agencies’ progress in producing more sound financial information has been impressive, given that only six agencies received clean audits in 1996. He said the speed with which the agencies are starting to report their information will start to play a more important role in the annual budgeting process.

"Treasury is the first to acknowledge that reporting financial results six months after the close of a fiscal year is simply not good enough," Hammond said. Accelerating that process "is a significant step forward since we will finally have actual data about the prior year for use in budget deliberations for the coming year."

Walker said government officials are waking up to the realization that accountability is going to be the watchword for the foreseeable future.

"The government is a late entrant into the financial management business," he said. "For many years, the government focused on getting the money and spending the money and [was] not focusing on accountability. We have come a long way in a short time, but we don’t have the market forces [driving us] that the private sector has."

"If Brazil can have a secure, accurate and timely financial management system," Platts said, "then we ought to be able to do it."

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