Agencies still struggling to get finances in order

Most agencies failed to get their finances in order for fiscal 1999, according to a General Accounting Office report.

Of the 24 agencies covered under the Chief Financial Officers Act, only the Energy Department, NASA and the National Science Foundation complied with the financial requirements of the 1996 Federal Financial Management Improvement Act of 1996.

Under FFMIA, agencies must produce timely and reliable statements demonstrating their compliance with federal financial management systems requirements, federal accounting standards and the U.S. government standard general ledger. If an agency believes its systems are not FFMIA-compliant, it must develop a remediation plan to achieve compliance within three years.

According to GAO, the FFMIA compliance results for fiscal 1999 were similar to those for 1997 and 1998.

"This continuing, widespread noncompliance with FFMIA is indicative of the overall longstanding poor condition of agency financial systems," said the GAO report, "FFMIA Results for Fiscal Year 1999" (GAO/AIMD-00-307).

Reasons for noncompliance included:

• Nonintegrated financial management systems. Without a central, reliable financial system, data entry errors can occur and information cannot be reported in a timely manner. Fifteen of the 21 noncompliant agencies reported nonintegrated systems as a problem in meeting FFMIA requirements.
• Inadequate reconciliation procedures. Such procedures serve as a checklist for verifying financial data. The same way individuals make sure their checkbook balances match up with their monthly bank statements, all of an agency's financial records must reflect the same data. Fifteen of the 21 noncompliant agencies reported problems meeting this criterion.
• Noncompliance with the Standard General ledger (SGL). The general ledger provides a uniform chart of accounts and technical guidance used to standardize agency accounting. Agencies that do not properly use these standards to collect their financial information run the risk of obtaining unreliable and inaccurate data. Fourteen of the 21 noncompliant agencies could not meet the SGL standard.
• Lack of adherence to federal accounting standards. Currently, there are 17 federal financial accounting standards, but emerging accounting issues mean agencies need to be able to accommodate new standards continually. Fifteen of the 21 noncompliant agencies failed to meet one or more federal accounting standards.
• Weak security over information systems. The onslaught of recent hacker attacks demonstrates the vulnerability of many federal information systems, putting the reliability and availability of financial data at risk. All 21 noncompliant agencies failed to meet information security standards.

GAO emphasized, however, that a clean opinion is not an end in itself. "Although a clean opinion indicates that year-end financial information is fairly presented, it provides no assurance about the effectiveness and efficiency of financial systems used to prepare the statements or whether use of the same or other information generated by the financial systems for management use throughout the year would be appropriate," said the report.

The report recommended that the Office of Management and Budget continue to work with agencies on getting their finances in order and on meeting the deadline for submitting their annual financial statements.

OMB said the GAO report did not give agencies enough credit for their improvement in meeting FFMIA requirements, and that an agency's noncompliant status does not accurately measure the progress many agencies have made in one or more compliance areas.

Regarding weak computer security, OMB said many problems relating to computer security need to be tackled on a departmentwide level by the chief information officer.