Government flunks annual audit

GAO report: "Improved Financial Systems Are Key to FFMIA Compliance"

Production of timely and reliable financial data continues to elude most federal agencies despite an increase in the number of clean year-end audits, according to a report from the government's auditors.

Government Accountability Office officials earlier this month issued their annual assessment of agency compliance with the Federal Financial Management Improvement Act, which applies to all 23 agencies with a Senate-confirmed chief financial officer. The act requires agency officials and their financial management systems to provide accurate, reliable and timely financial management information to the government's managers.

Financial officials say passing audits are important, but they are only one element of good financial management. Good financial systems, they say, provide managers with the data that allows them to make accurate decisions daily.

GAO's report found that 17 agencies were deficient in at least one of six areas during fiscal 2003, citing divergence from standard general ledger elements and inadequate security for information systems, among others.

But not all the news was bad. Two previously noncompliant agencies, the Commerce Department and the Nuclear Regulatory Commission, sufficiently complied with financial regulations, according to GAO auditors.

The General Services Administration, on the other hand, returned to noncompliance because of "reconciliation issues related to a newly implemented system," the report states. A GSA spokeswoman acknowledged the findings but said, "It is important to note that GSA received a clean audit opinion that year."

The disconnect between the increase in agencies with clean audits and the relatively constant number of agencies failing inspections is probably attributable to "sometimes heroic efforts to bring the data together," said C. Morgan Kinghorn, president of the National Academy of Public Administration and former Internal Revenue Service CFO. Compliance with the act's provisions is meant to eliminate that hectic year-end scramble.

One way to ensure that agency officials produce better financial data daily would be more detailed audits, according to GAO officials. They give negative assurance, as opposed to positive assurance, which requires more comprehensive audit and testing procedures.

Office of Management and Budget officials, however, oppose the recommendation. "We have a lot of oversight and management action that we believe are more effective and more cost-beneficial than the positive assurance," said an OMB official who spoke on the condition of anonymity.

The President's Management Agenda score card is one such tool, the official said. "Every quarter, we go through all the [President's Management Agenda] issues, [including] noncompliance issues and internal control weaknesses that agencies have." GAO auditors said the process "does not come under audit scrutiny and may not be reliable."

But "going the extra distance for audit assurance is just not beneficial," the OMB official said. The six areas measured in the GAO audit are also variables that OMB officials use on the quarterly score card, the official added, an assertion disputed by a former CFO who requested anonymity. "As it stands today, there isn't enough specificity in the OMB score card," the former CFO said, adding that at the same time, "I don't think GAO is asking the right questions, either."

A planned revision of OMB Circular A-123, which guides federal management controls, will become "another step toward ensuring that a solid foundation of financial controls are in place," the OMB official said.

***

Financial systems set for revamp

Officials in the Joint Financial Management Improvement Program (JFMIP) office are preparing to update documents governing financial systems requirements for agencies covered by the Chief Financial Officers Act of 1990.

A draft version of requirements for JFMIP's updated property management system is available for public review and comment until Nov. 12.

"I'd say that 25 percent of the document has changed," said Bruce Turner, senior financial analyst at JFMIP. Legislative and executive branch policy decisions and best practices have been piling up since 2000, when program officials last revised the requirements, he

said.

Several changes necessitate an update to property management regulations.

National defense assets must not be treated as exempt from capitalization and depreciation.

A unique identifier must be assigned to all items placed into service.

Software license fees must be tracked as part of total software expenses.

Federal officials must report their inventory of property assets to the General Services Administration.

Officials also are revising requirements for core financial systems and could have a draft document for public comment before January 2005, Turner said.

Additionally, for the first time, JFMIP officials are crafting a requirements document for insurance feeder systems.

They are empowered by statute to craft financial systems standards and test and certify commercial software through the program

office.

Bill proposes formalizing DHS CFO

Lawmakers have approved a bill that would put the Homeland Security Department's chief financial officer on par with CFOs at the largest federal agencies.

As of midweek, the DHS Financial Accountability Act was awaiting President Bush's signature.

In addition to creating a legally required CFO whom the Senate would confirm, the bill would require outside financial audits of the agency. The bill would mandate that the department abide by the Chief Financial Officers Act of 1990.

DHS officials had argued that the legislation was unnecessary because DHS officials have voluntarily complied with the act's provisions. The expense of preparing for an independent audit might be overly burdensome, DHS CFO Andrew Maner told a House committee earlier this year.

But data produced for outside auditors is likewise "useful for program management and not just for paying the bills and the accountants," said C. Morgan Kinghorn, president of the National Academy of Public Administration and former Internal Revenue Service CFO.

Rep. Todd Platts (R-Pa.), one of the bill's sponsors, said the legislation would ensure "the CFO at DHS [is] on equal footing with all other Cabinet-level departments by requiring Senate confirmation." Furthermore, independent audits "will help uncover inherent weaknesses and address problems as business practices are being established — before they become ingrained," he said in a written statement.

— David Perera

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