The long-term fiscal  pressures created by the retirement of the baby boom generation and new  homeland security and defense commitments, including the ongoing  Operation Iraqi Freedom, sharpen the need to look at competing claims on  federal budgetary resources and new priorities. Highlights of Major Issues Relating to the U.S. Government’s Consolidated Financial Statements for Fiscal Years 2002 and 2001

As I mentioned earlier, as has been the case for the past 5 fiscal years, the  federal government continues to have a significant number of material  weaknesses related to financial systems, fundamental recordkeeping and  financial reporting, and incomplete documentation. Several of these  material weaknesses (referred to hereafter as material deficiencies)  resulted in conditions that continued to prevent us from expressing an  opinion on the U.S. government’s consolidated financial statements for the  fiscal years ended September 30, 2002 and 2001. Providing Sustained Leadership and Oversight for Effective Implementation of Financial Management Reform

Over the past year, the JFMIP Principals continued our efforts, begun in  August 2001, to accelerate progress in financial management reform. Also,  President Bush has implemented the President’s Management Agenda to  provide direction to, and to closely monitor, management reform across  government, which encompasses improved financial performance. In fiscal year  2002, JFMIP Principals continued the series of regular, deliberative  meetings that focused on key financial management reform issues such as  defining success measures for financial management performance that  go far beyond an unqualified audit opinion on financial statements and  include measures such as financial management systems that routinely  provide timely, reliable, and useful financial information and no material  internal control weaknesses or material noncompliance with laws and  regulations and Federal Financial Management Improvement Act of  1996 (FFMIA) requirements; restructuring the Federal Accounting Standards Advisory Board’s  (FASAB) composition to enhance the independence of the Board and  increase public involvement in setting standards for federal financial  accounting and reporting;  significantly accelerating financial statement reporting to improve  timeliness for decision making and to discourage costly efforts designed  to obtain unqualified opinions on financial statements without  addressing underlying systems challenges;  establishing audit advisory committees for selected major federal   addressing difficult accounting and reporting issues, including  impediments to an audit opinion on the U.S. government's consolidated  financial statements and reporting updated social insurance financial  information in the U.S. government’s consolidated financial statements. Building on the Success of Unqualified Audit Opinions

Building on the success that has been achieved in obtaining unqualified  audit opinions, federal agency management must continue to work toward  fully resolving the pervasive and generally long-standing material  weaknesses that have been reported for the past 6 fiscal years. It recognized that “most  federal agencies that obtain clean audits only do so after making  extraordinary, labor-intensive assaults on financial records.” Further, the  President’s Management Agenda stated that without sound internal control  and accurate and timely financial information, it is not possible to  accomplish the President’s agenda to secure the best performance and  highest measure of accountability for the American people. Irrespective of the unqualified opinions on their financial statements, many  federal agencies do not have timely, accurate, and useful financial  information and sound controls with which to make informed decisions  and to ensure accountability on an ongoing basis. Three major impediments to an opinion  on the consolidated financial statements are (1) serious financial  management problems at DOD, (2) the federal government’s inability to  fully account for and reconcile billions of dollars of transactions between  federal entities, and (3) the federal government’s inability to properly  prepare the consolidated financial statements.
Why GAO Did This Study

GAO is required by law to audit the consolidated financial statements of the U.S. government. Timely, accurate, and useful financial information is essential for making informed operating decisions day to day, managing the federal government's operations more efficiently and effectively, meeting the goals of federal financial management reform legislation, supporting results-oriented management approaches, and ensuring accountability on an ongoing basis. The importance of such information is heightened by the unprecedented demographic challenge of an aging population. Federal spending on the elderly, health care, and new homeland security and defense commitments increases the need to look at competing claims on the budget and at new priorities. Over the past year, the Principals of the Joint Financial Management Improvement Program continued efforts to accelerate progress in financial management reform. Also, President Bush has implemented the President's Management Agenda to provide direction to, and closely monitor, management reform across government, which encompasses improved financial management performance. To effectively implement federal financial management reform, sustained leadership and oversight are essential.

What GAO Found

As in the 5 previous fiscal years, the federal government continues to have a significant number of material weaknesses related to financial systems, fundamental recordkeeping and financial reporting, and incomplete documentation. Several of these material weaknesses resulted in conditions that continued to prevent us from expressing an opinion on the U.S. government's consolidated financial statements for the fiscal years ended September 30, 2002 and 2001. Three major impediments to an opinion on the consolidated financial statements are (1) serious financial management problems at DOD, (2) the federal government's inability to fully account for and reconcile billions of dollars of transactions between federal entities, and (3) the federal government's inability to properly prepare the consolidated financial statements. Federal agencies have continued to make progress in obtaining unqualified audit opinions--21 of 24 Chief Financial Officers (CFO) Act agencies for fiscal year 2002, up from 6 for fiscal year 1996. Irrespective of the unqualified opinions, many federal agencies do not have timely, accurate, and useful financial information and sound controls with which to make informed decisions and to ensure accountability on an ongoing basis. Building on the success achieved in obtaining unqualified audit opinions, federal agency management must continue to work toward fully resolving the pervasive and generally long-standing material weaknesses that have been reported for the past 6 fiscal years. The President's Management Agenda stated that without sound internal control and accurate and timely financial information, it is not possible to accomplish the President's agenda to secure the best performance and highest measure of accountability for the American people.