House panel chides agencies for poor financial management

Leaders from the three federal agencies with the worst records in financial management took their lumps Tuesday during a series of hearings before a House Government Reform Subcommittee. Officials from the departments of Defense and Agriculture and the Agency for International Development (AID) went before the House Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations to discuss their efforts to improve their dismal financial management records. All three agencies have failed to achieve clean opinions on their financial statements for the past four years. The government as a whole failed its fourth consecutive audit for fiscal 2000 largely because of poor financial management at Defense and Agriculture, two of the largest departments, according to the General Accounting Office. "The failures of a few agencies continue to tarnish the overall record of the executive branch," said Rep. Steve Horn, R-Calif., chairman of the subcommittee. Inspectors general from each agency complained that last-minute heroic efforts by agencies to achieve clean audits take the focus-and the resources-away from fixing underlying financial management problems. "We are putting money into audits that will fail, instead of correcting the system," said Robert J. Lieberman, deputy inspector general at Defense. Officials from the agencies and GAO said accounting systems modernization and a commitment from agency leaders to make financial management a priority are crucial to improvement. Gregory D. Kurtz, director of financial management and assurance at GAO, said that the active involvement and support of the Secretary and Deputy Secretary of Defense are important to the success of major Defense reform initiatives, including improving financial management. "Such top-level support helps guarantee that daily activities throughout the department remain focused on achieving shared, agencywide outcomes," he said. Lawrence J. Lanzillotta, deputy undersecretary for management reform at Defense, said overhauling the department's financial practices is one of Secretary Donald Rumsfeld's top priorities. AID's inspector general, Everett L. Mosley, agreed that a strong show of support from the agency's leadership for financial management was important. The agency's "financial managers have shown an increasingly strong and supportive attitude towards the financial statement audit and the value it brings to their systems," said Mosley. Mosley said AID Administrator Andrew S. Natsios has pledged to improve the agency's management systems. Although Defense, Agriculture, and AID have all put in place initiatives aimed at reforming accounting systems, overall progress in financial management continues to move at a snail's pace, said participants in Tuesday's hearings. Lieberman said it will cost $3.7 billion to make financial reporting systems compliant with federal accounting standards by 2003, but said it was "overly optimistic" to expect the goal to be achieved in that time frame. In January, Defense implemented a financial compliance system that will monitor the department's finance and accounting systems, identify weaknesses and ensure the agency's compliance with federal accounting standards. AID faces a similar time frame for the complete implementation of its new accounting system, known as Phoenix. Although the system was up and running in the agency's Washington headquarters last December, it won't be fully implemented in overseas offices until 2003. Although Agriculture's new integrated financial information system is scheduled to be fully implemented by October, the agency's fiscal 2001 financial statement will still reflect Agriculture's poorly managed current accounting system, said Inspector General Roger C. Viadero. Defense, Agriculture and AID suffer from a variety of financial management problems. Defense was unable to reconcile an estimated $3.5 billion difference between its own records and those of the Treasury Department at the end of fiscal 2000. Department officials cannot properly account for weapons and equipment and overpaid nearly $1 billion to contractors in fiscal 2000. Agriculture also has problems accounting for its property and reconciling its fund balance with the Treasury Department. As of September 1999, the discrepancy between the two balances was $5 billion. However, the department managed to collect $188 million in delinquent debt during fiscal 2000-a 38 percent increase over fiscal 1999. Although AID is much smaller in size than Defense and Agriculture, it operates a complex grant and loan system in more than 70 countries, providing aid to foreign governments and humanitarian organizations. The agency manages approximately $10 billion in outstanding loans-an estimated $4 billion of which cannot be collected, according to AID officials.