Agencies still fail to comply with key financial law, says GAO

Most federal agencies are still unable to use data from their financial systems to make daily management decisions, but the Bush administration's emphasis on financial management is improving systems at some agencies, according to a new report from the General Accounting Office. In its sixth annual report on implementation of the 1996 Federal Financial Management Improvement Act (FFMIA), GAO found that incompatible financial systems, poor accounting practices, and weak security controls are the main reasons why most agencies still fail to comply with the law. Earlier this year, agency inspectors general found that 20 of 24 agencies covered by the 1990 Chief Financial Officers Act failed to meet FFMIA's mandates, which require agencies to comply with the Standard General Ledger and other federal accounting tools.

Agencies with numerous financial systems must rely on costly, labor-intensive tactics to get clean audits, GAO concluded in its report, "Financial Management: FFMIA Implementation Necessary to Achieve Accountability" (03-31 ). For example, the Education Department relied on a mix of manual and automated methods to balance its books in 2001-a risky process, according to GAO. And a clean audit does not provide financial information that managers can use to run their programs, a main goal of FFMIA.

"While more CFO Act agencies have obtained clean or unqualified audit opinions…there is little evidence of marked improvements in agencies' capacities to create the full range of information needed to manage day-to-day operations," the report said.

GAO noted that several agencies are trying to capture the full cost of their operations, a precursor to using financial data to make management decisions. Agencies such as the Small Business Administration, the Interior Department and the Marine Corps are using activity-based costing, an accounting method that provides managers with useful cost data. But the technique does not work for everyone, according to GAO.

The report also noted that the Bush administration's focus on financial management has improved financial systems at some agencies, such as the Labor Department. Earlier this year, Labor was upgraded from "red" to "yellow" on the president's management scorecard, a sign of progress.

The administration has also used the Joint Financial Management Improvement Program (JFMIP) as a way to improve financial management practices. JFMIP leaders, who include the comptroller general, director of OPM and OMB comptroller, have been meeting quarterly to address financial management policy. JFMIP and OMB are crafting new performance measures for financial management that give agencies targets beyond obtaining clean audit opinions.

Federal managers would also like to have more usable financial information. In a recent survey by the Association of Government Accountants and Government Executive, 74 percent of respondents said they would like more access to information that ties costs to performance. More than 800 senior executives and federal managers responded to the survey.