Federal audits improve, but real work lies ahead, OMB says

Federal agencies are getting better at balancing their books, but must dramatically improve how they account for their money to meet the Bush administration's financial management goals, Office of Management and Budget Director Mitch Daniels said Thursday. Daniels spoke at an OMB event in which fiscal 2001 financial audits for 24 major agencies covered by the 1990 Chief Financial Officers Act were unveiled. For the second straight year, 18 of 24 agencies received a clean opinion on their audits, a sign of strong fiscal controls. Top performers included the Justice and Transportation Departments, which posted clean opinions after years of receiving sub-par audit grades. NASA and the Federal Emergency Management Agency slipped from "clean" status in 2001. FEMA earned a qualified opinion, while NASA got a disclaimer, or failing mark, on its financial statements. To see the full results, click here. Two departments with chronically poor finances showed improvement in their audits, according to OMB Controller Mark Everson. Four out of five agencies in the Agriculture Department earned what OMB termed "largely clean" opinions, although the department itself received a disclaimer because of accounting weaknesses at the Forest Service. The Defense Department also received a disclaimer, but Everson praised the department's effort to consolidate more than 600 financial systems into a single centralized database. "I'm very pleased with the aggressive action that they're taking over there," he said. Despite these gains, Daniels and Everson were quick to note that agencies will have less time to prepare their audits in future years. This year, all 24 agencies met a Feb. 27 deadline for submitting their audited financial statements to OMB. Fiscal 2002 audits are due on Feb. 1, 2003, and OMB will ask for fiscal 2003 financial statements by mid-November 2003--just 45 days after the close of the fiscal year. Agencies with late or failing audits can also expect to get poor marks in financial management on the Bush management scorecard. For example, OMB will downgrade NASA's financial management grade from yellow to red as a result of its audit disclaimer, said Everson. Agencies must also crack down on improper payments and do a better job of using financial information to influence management decisions, according to Daniels. "The massive task of stopping improper payments and controlling unnecessary costs still lies ahead," he said. Everson also pushed OMB's legislative proposal to charge agencies for the full cost of all federal pensions and retiree health benefits. At present, Congress automatically pays for pension costs for employees in the Civil Service Retirement System and retiree health benefits for all federal employees. A measure in OMB's Managerial Flexibility Act would shift these benefit costs to the discretionary side of the budget and make agencies pay for them. OMB directed agencies to include these costs in their fiscal 2003 budgets, which added $9 billion in discretionary spending to the administration's overall budget request. Accounting groups have endorsed the proposal, but federal unions oppose it, claiming it makes federal employees appear more expensive than they really are.