Agencies said to be on brink of financial breakthrough

Though the federal government has yet to pass an audit, agencies are on the brink of substantial improvements in financial management, officials assured lawmakers on Wednesday.

Pentagon leaders are demonstrating a commitment to resolving long-standing accounting problems, said Comptroller General David Walker, in testimony before the House Government Reform Subcommittee on Efficiency and Financial Management. The Defense Department, which continues to hold the government back from earning a clean audit, has historically lacked top-level devotion to financial management, he noted.

Pentagon officials are working to integrate and modernize disparate accounting systems and safeguard financial data, Walker said. But the process could take a while and the Defense Department still faces significant challenges, he cautioned.

For instance, Walker recommended that the Pentagon centralize control over appropriated funds. Once money reaches lower levels, "you lose visibility," he explained, and the difficulty of achieving sound financial management "increases exponentially."

Agencies have made laudable progress at speeding up the preparation of annual financial statements, Walker testified. Eight agencies -- the Education, Health and Human Services, Treasury and Veterans Affairs departments and the National Science Foundation, Social Security Administration, Agency for International Development and Environmental Protection Agency -- handed in paperwork for fiscal 2003 in November, less than two months after the end of the fiscal year.

This puts these agencies a year ahead of schedule at meeting accelerated deadlines for submitting audit paperwork to the Office of Management and Budget. Starting in fiscal 2004, agencies covered under the 1990 Chief Financial Officers Act will have to hand in paperwork by mid-November rather than by Feb. 1, the deadline in fiscal 2002 and 2003.

"Many [financial management] challenges remain, but others that appeared insurmountable just a few years ago are being solved," testified Linda Springer, controller of OMB's Office of Federal Financial Management. "Who would have thought that the administration's goal of shortening the time for agencies to prepare audited financial statements from five months to 45 days after the end of the [fiscal] year would be attained by a third of the major agencies a year in advance of the deadline?"

In addition, the Treasury Department is nearly finished developing a computer system that will improve the accuracy of the government's consolidated financial statement. The system, called the Governmentwide Financial Report System, will transfer financial data directly from agencies to Treasury, cutting down on mistakes.

Five agencies already have tested the financial report program, and the rest will begin in June 2004, according to Don Hammond, fiscal assistant secretary for the Treasury Department. All agencies will enter data into the system during the fiscal 2004 audit process, Hammond testified.

Despite these projected improvements, the government still faces major obstacles to sound financial management, Walker said. Though 20 of 23 CFO Act agencies received clean audit opinions in fiscal 2003, all but three of the agencies either failed to comply with a financial management law or exercised weak internal control over accounts.

Agencies should pay attention to these problems and address them, Walker noted. "The requirement for timely, accurate and useful financial and performance management information is greater than ever as the nation faces major long-term fiscal challenges that will require tough choices in setting priorities and linking resources to results," he said.

The three panelists testifying before the House subcommittee said they would ultimately like to see agencies do more than submit financial statements on time and earn clean audit opinions. Agency managers should eventually use financial information to evaluate program performance and shape future goals, the panelists said.

"Does financial reporting assist agency heads and managers in making decisions?" Hammond asked. "Does it provide important performance information? Here lies the greatest challenge and potentially the greatest benefit from financial reporting."