Agencies get financial reports out more quickly, but quality dips

After struggling to meet this year's new early deadline to issue financial reports, agencies received fewer clean audits than last year, suggesting that in some cases, speed may have eclipsed quality.

The Housing and Urban Development and Justice departments both received disclaimer opinions-meaning the auditors did not have enough information to judge the statements-for their fiscal 2004 statements after receiving clean opinions last year. The Health and Human Services Department did not turn in a completed audit by the Nov. 15 deadline.

NASA and the Defense and Homeland Security departments received disclaimers as they did for fiscal 2003, and one agency, the Small Business Administration, went from receiving a disclaimer to receiving a qualified opinion, meaning its statements were auditable but contained some weaknesses.

Agencies have been putting more emphasis on financial reporting in recent years, partly because the President's Management Agenda highlights financial performance as a pillar of efficient government, and partly because the private-sector focus on accurate accounting from the 2002 Sarbanes-Oxley Act has trickled over to federal agencies.

The Office of Management and Budget set the early deadline to make financial information more useful and timely for managers assessing and planning programs. While OMB said the results indicated progress, some financial officers and lawmakers have said that the accelerated deadline made it harder for agencies to get clean audits, making it difficult for outsiders to know if the financial statements are accurate. This year's deadline was three months earlier than in previous years.

"The information we learn from these audits is important, and I'm concerned that some agencies were not able to fully complete the audit process," Rep. Todd Platts, R-Pa., wrote Monday in an e-mail message to Government Executive. He also said he applauded the intent of the earlier deadline, which "is more in line with what we require of publicly traded companies, and is one way to ensure that financial managers have timely information on which to base budget decisions."

HUD's statement said its disclaimer was a result of auditors being unable to complete their work because of the shortened time frame. "OMB has communicated that delayed reporting beyond November 15, 2004, would not be acceptable, even if the department could improve on its opinion status by having us continue with audit testing until we were able to complete the audit and render an opinion," wrote James Heist, HUD's assistant inspector general for audit, in HUD's Performance and Accountability Report. An agency's inspector general, or an outside auditing firm, audits each agency's financial statements after they are complete.

In the report, Carin Barth, HUD's chief financial officer, wrote, "HUD's management is unaware of any issues that would have precluded the department from receiving an unqualified audit opinion on its FY 2004 consolidated statements, had the audit been completed," adding that HUD received an unqualified audit opinion on its consolidated financial statements from fiscal 2000 through 2003.

OMB gave an upbeat assessment of the audit results, pointing out that most agencies received clean reports. "A significant milestone has been achieved in federal financial management," noted Linda Springer, controller for OMB's Office of Federal Financial Management, referring to the earlier deadline.

Many agencies had to work to meet the new deadline while they are in the midst of implementing new financial systems. "When you're trying to do a good job with that, it's harder to respond to a deadline that's sooner," said Ed Verburg, former deputy chief financial officer with the Treasury Department and now vice president for government services for Kelly, Anderson & Associates Inc.

NASA and Justice, both of which received disclaimers, are among the agencies that are in the midst of implementing new financial systems.

Gary Engel, a director of the Government Accountability Office's financial management and assurance team, called this year's increased number of disclaimer opinions "growing pains."

He added, "People can't just snap their fingers and get a new financial management system," which is often required at agencies that previously lacked a quick way of generating financial statements. GAO will address the impact of the accelerated deadline in a report scheduled to be released in conjunction with the Treasury's release of the government's consolidated financial statements on Dec. 15.

Platts, chairman of the House Government Reform Subcommittee on Government Efficiency and Financial Management, was quick to point out that the bigger test of success is not clean audits, but rather the usefulness of financial statements. Many of the new financial systems being implemented, including those at the Internal Revenue Service and Labor Department, are designed to take advantage of new technology to make them easier to use.

"Clean audits are merely a starting point. What we need to manage effectively is timely, accurate, useful financial data," he said. "Without this information, the federal government cannot analyze costs and benefits or gather an accurate assessment of program performance."

Those who were prepared for the early deadline expressed satisfaction. "Having to meet the accelerated closing deadline this year is like a paratrooper jumping out of the plane for the first time: Fearful and stressed out before the leap out of the plane, but then feeling really good and a sense of accomplishment after the safe landing," said Samuel Mok, chief financial officer for the Labor Department, which has received a clean audit for the past eight years.