FFMIA requires the  departments and agencies covered by the CFO Act to implement and  maintain financial management systems that comply substantially with   (1) federal financial management systems requirements, (2) applicable  federal accounting standards, and (3) the SGL at the transaction level. The agencies selected for visits included the 5 agencies  where auditors provided negative assurance of FFMIA compliance in fiscal  year 2005 (Commerce, Environmental Protection Agency (EPA), National  Science Foundation (NSF), Office of Personnel Management (OPM), and  Social Security Administration (SSA)); the agency where auditors provided  an opinion, or positive assurance, of FFMIA compliance in fiscal year 2005  (Labor); the 2 agencies where auditors provided negative assurance of  FFMIA compliance in fiscal year 2004 but reported those agencies as  noncompliant in fiscal year 2005 (the Department of Energy (Energy) and  the General Services Administration (GSA)); and 4 of the agencies with  the largest net costs as reported in the fiscal year 2005 Financial Report of  the United States Government. In contrast, the number of CFO Act agencies receiving  unqualified opinions on their financial statements has increased  significantly since 1997, when FFMIA reporting began. In fiscal year 2005, auditors for 18 of the CFO Act  agencies reported that the agencies’ financial management systems do not  substantially comply with at least one of the three FFMIA requirements. From our perspective,  FFMIA requires auditors to provide positive assurance, which is an  opinion, because section 803 (b)(1) of FFMIA requires auditors to “report  whether the agency financial management systems comply with the  requirements of .” Auditors provide negative assurance when they  state that nothing came to their attention during the course of their  planned procedures to indicate that the agency’s financial management  systems did not meet FFMIA requirements. Given OMB’s explicit instruction to  provide negative assurance, some auditors also indicated that a change in  OMB’s guidance on FFMIA reporting would be necessary in order for them  to provide an opinion on FFMIA compliance. We share concerns  about the added cost, but want to make our view quite clear that the focus  needs to be on the ultimate end goal of having financial management  systems able to routinely produce reliable, useful, and timely financial  information. 4, Managerial Cost Accounting  Concepts and Standards for the Federal Government. Federal Financial Management System Initiatives Continue to Evolve

Agencies have a number of efforts under way to address their existing  financial management systems problems. However,  establishing good financial management throughout the federal  government will also require changing the organizational culture of some  federal agencies; therefore, the sustained leadership and support of the  Congress has been and continues to be essential to the reform of financial  management in the federal government. VI) on a draft of this report, OMB  generally agreed with our assessment that while federal agencies continue  to make progress in addressing financial management systems  weaknesses, many agencies still need to make improvements to produce  the information needed to efficiently and effectively manage day-to-day  operations. This bulletin did  not substantially revise the FFMIA audit guidance included in Bulletin No. Moreover, core  financial systems certification does not mean that agencies that install  these packages will have financial management systems that are compliant  with FFMIA.
Why GAO Did This Study

The ability to produce the financial information needed to efficiently and effectively manage the day-today operations of the federal government and provide accountability to taxpayers continues to be a challenge for most federal agencies. To help address this challenge, the Federal Financial Management Improvement Act of 1996 (FFMIA) requires the Chief Financial Officers (CFO) Act agencies to implement and maintain financial management systems that comply substantially with (1) federal financial management systems requirements, (2) federal accounting standards, and (3) the U.S. Government Standard General Ledger at the transaction level. FFMIA also requires GAO to report annually on the implementation of the act.

What GAO Found

While the number of CFO Act agencies receiving unqualified opinions on their financial statements has increased significantly since 1997, the number of CFO Act agencies that did not substantially comply with FFMIA has remained fairly constant as shown below. Although agencies have made improvements and have other enhancements under way, the systems deficiencies that have prompted unfavorable FFMIA assessments indicate that the financial management systems of many agencies are still not able to routinely produce reliable, useful, and timely financial information. GAO views the continuing lack of compliance with FFMIA and the associated problems with agency financial systems to be significant challenges to improving the management of the federal government. For fiscal year 2005, auditors for five agencies provided negative assurance that agency systems substantially complied with FFMIA as allowed by the Office of Management and Budget's (OMB) current audit guidance. This means that nothing came to their attention to indicate that agency financial management systems did not substantially comply with FFMIA requirements. GAO continues to believe that this type of reporting is not sufficient for reporting under the act. In addition, negative assurance may provide the false impression that the auditors are reporting that the agencies' systems are compliant. In contrast, auditors for the Department of Labor (Labor) provided positive assurance, which is an opinion, by reporting that Labor's financial management systems substantially complied with FFMIA requirements--a reporting practice that adds more value. Auditors have expressed concern about providing positive assurance because of the need to clarify the meaning of substantial compliance. In addition, some auditors stated that a change in OMB's guidance that permits negative assurance would be necessary for them to provide an opinion on FFMIA compliance. To help address financial management systems deficiencies, OMB continues to move ahead on initiatives to enhance financial management in the federal government. Moreover, the continuing leadership and support of Congress will be crucial in reforming financial management in the federal government.