Administration touts continued progress on financial audits

Agencies have achieved the best audit results in recent years, giving the incoming administration a solid foundation for further progress, the Office of Management and Budget announced on Wednesday.

All but four of the 24 agencies required to have annual audits under the 1990 Chief Financial Officers Act received clean opinions for fiscal 2008, and all submitted their paperwork on time, OMB reported. In fact, seven agencies handed in their reports three days early, and every agency left a cushion of at least an hour before the midnight deadline on Monday, according to an OMB official who spoke on condition of anonymity. This was in marked contrast to 2004 -- the first year agencies were required to accelerate reporting to 45 days after the close of the fiscal year -- when agencies were "using every minute" available, the official said.

"The hats-off on this goes to the career employees in the federal government who wanted to make this happen," said Clay Johnson, deputy director for management at OMB. "They're highly motivated to do it."

Of particular note, the Treasury Department achieved a passing mark despite last-minute complications as the government got more involved in stabilizing the economy. The takeover of mortgage giants Fannie Mae and Freddie Mac had to be reflected in the department's financial statements, for instance, since it occurred shortly before the end of the fiscal year on Sept. 30. It took significant effort to figure out the appropriate way to record these "unprecedented activities so that taxpayers could understand what this meant to Treasury's finances," said the OMB official, who discussed the audit results during a conference call, along with Johnson.

Administration officials also praised the Army Corps of Engineers, which earned its first clean audit, providing a glimmer of hope for its parent agency, the Defense Department. The Army Corps is the largest Defense entity to achieve a passing mark thus far, and doing so required a massive concerted effort because of the agency's large property inventory and decentralized structure, the OMB official said.

Agencies also made a dent in material weaknesses -- issues that give auditors pause about the reliability of financial information -- reducing them by 18 percent from 39 in fiscal 2007 to 32 in fiscal 2008. The Transportation Department boasted its first clean audit with no material weaknesses, showing that this combination is "very possible and viable" even for large agencies, the OMB official noted.

Agencies won plaudits for identifying more improper payments, which include over- or underpayments to beneficiaries of federal programs such as housing assistance and food stamps.

OMB estimated that the governmentwide payment error rate in fiscal 2008 was 3.9 percent or $71.7 billion. While this is an increase of $16.7 billion over fiscal 2007, it includes mistaken payments for 12 programs that were reviewed the first time in 2008 and is a much more comprehensive estimate than before, the OMB official said. Agencies have taken steps to eliminate mistakes identified in past years, the budget office noted, reducing the error rate for programs examined in fiscal 2004 from 4.4 percent to 3 percent.

It will fall to President-elect Obama's management team to continue this progress, and address lingering material weakness and bringing the four agencies that failed their audits up to speed. Those agencies -- the Defense, Homeland Security and State departments, and NASA -- share some challenges. Defense and Homeland Security have trouble with property inventories and keeping track of how much cash they have on hand, for instance. But other obstacles, such as Defense's outdated financial systems, are more unique.

Johnson recommended that the incoming administration set clear financial management goals and marshal the energy to achieve them. Motivating employees shouldn't be hard, he said. "The Obama administration is going to be very pleased with how well-prepared the financial management people are in each of the agencies to tackle these issues," Johnson said.