Financial management upgrades may take years

Agencies have been slow to improve on the financial management portion of the Bush administration's management score card partly because some are in the midst of technology upgrades that may take years, a White House official said.

While agencies made notable improvements in four of the five categories on the Office of Management and Budget's latest traffic-light-style score card, released a week ago, none moved up a notch in financial management. The majority still received red lights, the lowest rating, in that area.

Of the 26 agencies graded, 18 received failing marks in financial management. Only four merited a green light, indicating "success." The remaining four earned a yellow, denoting "mixed results." These marks reflect accomplishments as of March 31, the close of the second-quarter of fiscal 2004.

Movement on this portion of the score card may take a while because, in many cases, "upgrades depend on [the] implementation of new financial systems, which take many years," said an OMB official who asked to remain anonymous.

General Accounting Office research has shown that it could take as many as seven years to finish a new financial system. On average, the process takes four to five years, GAO concluded in an October 2003 report. GAO is working to update the report, and plans to release its findings this fall, an analyst said.

Agencies are also more likely to see improved grades in financial management following the completion of annual audits, since scoring standards are tied to the audits, the OMB official said.

To earn the highest rating in financial management, agencies must produce accurate financial data on demand, make financial information available to managers for use in daily decision-making, meet annual deadlines for submitting audit paperwork and obtain unqualified audit opinions. They also must demonstrate that they have addressed weaknesses in internal controls and are in full compliance with relevant laws and regulations, including the 1996 Federal Financial Management Improvement Act.

If properly implemented, new financial management systems should help agencies comply with FFMIA, GAO has concluded. The law requires agencies to maintain management systems capable of producing reliable, useful and timely financial information that can be applied to budget and policy decisions. Agencies generally have difficulty meeting all the requirements.

At the end of fiscal 2003, 17 of the 23 major agencies covered under the 1990 Chief Financial Officers Act had failed to meet at least one of FFMIA's mandates. GAO's report in October will analyze the most recent reasons for noncompliance. In past years, failure to maintain adequate security systems for financial data has been a common problem.

Though movement on financial management grades may be slow in coming, the White House doesn't intend to let up the pressure in this area. "There are no plans to adjust the criteria in the near future," the OMB official said.

Standards for financial management need to be fairly stringent, said John Kamensky, director of the Managing for Results Practice at IBM Business Consulting Services. "You do want the books to be balanced," he said. "So that's a place where it makes real sense to hold tight to those standards."