	USDA’s Financial Management

In the past, USDA had several persistent weaknesses in internal control  and in accounting and financial reporting that contributed to the OIG’s  inability to render an opinion on the department’s consolidated financial  statements. The OIG reported, among other things, that USDA was unable  to:    provide sufficient, competent evidential matter to support numerous  material line items on its financial statements including accounts  receivable, fund balance with the Department of the Treasury (Treasury),  and property, plant, and equipment; and    estimate and reestimate loan subsidy costs for its net credit program  receivables, rendering it unable to implement the Federal Credit Reform  Act of 1990 and related accounting standards. These are some of the factors that required extraordinary effort  to derive reliable financial information. USDA has taken actions over the last several years to improve its financial  management and to address the weaknesses identified by its OIG and us. For example, in fiscal year 2000, Food and Nutrition Service was, for the  first time, able to estimate its gross accounts receivable and related  estimate of uncollectible amounts resulting from over-issued benefits in its  Food Stamp Program. Further, for the first time since credit reform  reporting requirements were implemented in 1994, USDA’s lending  agencies were able to estimate and reestimate loan subsidy costs for the  department’s net credit program receivables, which totaled about $74  billion as of September 30, 2001. Because of USDA’s achievement in this  area, along with that of other key lending agencies, this item was no longer  a factor contributing to our disclaimer of opinion on the financial  statements of the U.S. government. In its fiscal year 2002  audit report, the OIG stated that USDA made significant improvements in  its overall financial management, such as implementation of a  departmentwide standard accounting system, the Foundation Financial  Information System (FFIS). They also significantly accelerated 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. Another financial management challenge for USDA is federal nontax  delinquent debt collection. In 1999, we  first designated financial management at the Forest Service to be “high  risk” on the basis of serious financial and accounting weaknesses that had  been identified, but not corrected, in the agency’s financial statements for  a number of years. The Forest Service received its first-ever unqualified opinion on its fiscal  year 2002 financial statements, which represents noteworthy progress  from prior years when the OIG was unable to express an opinion. At the same time, before USDA is  able to sustain financial accountability and produce relevant, reliable, and  timely information to effectively manage the department, it and its  component agencies, particularly the Forest Service, must resolve some  very difficult issues.
Why GAO Did This Study

In January, we issued our Performance and Accountability Series on management challenges and program risks at major agencies, including the U.S. Department of Agriculture (USDA). The report for USDA focused on a number of major management challenges, including enhancing financial management, and continued the high risk designation for Forest Service financial management. For many years, USDA struggled to improve its financial management activities, but inadequate accounting systems and related procedures and controls hampered its ability to get a clean opinion on its financial statements. After eight consecutive disclaimers of opinion, USDA's Office of Inspector General issued an unqualified opinion on USDA's fiscal year 2002 financial statements and reported that significant progress had been made in improving overall financial management. For each of USDA's agencies that prepared separate financial statements for fiscal year 2002, the audit opinions were also positive. Specifically, unqualified audit opinions were issued on the financial statements of the Forest Service, Federal Crop Insurance Corporation/Risk Management Agency, Commodity Credit Corporation, the Rural Development mission area, and the Rural Telephone Bank. While we consider these clean opinions a positive step, some of these could not have been rendered without extraordinary efforts by the department and its auditors. Achieving financial accountability will require more than heroic efforts to obtain year-end numbers for financial statement purposes. Without reliable financial systems and sound internal controls, it is not possible to have sound data on a timely basis for decision making. Before USDA can achieve and sustain financial accountability, and thus be in a position to have reliable system-generated data as needed, it and its component agencies, particularly the Forest Service, must address a number of serious problems that USDA's Office of the Inspector General (OIG) or we have reported.

What GAO Found

In the past, USDA had several persistent weaknesses in internal control and in accounting and financial reporting that contributed to the OIG's inability to render an opinion on the department's consolidated financial statements. The OIG reported, among other things, that USDA was unable to provide sufficient, competent evidential matter to support numerous material line items on its financial statements including accounts receivable, fund balance with the Department of the Treasury and property, plant, and equipment. The OIG also reported that USDA was unable to estimate and reestimate loan subsidy costs for its net credit program receivables, rendering it unable to implement the Federal Credit Reform Act of 1990, and related accounting standards. USDA has taken actions over the last several years to improve its financial management and to address the weaknesses identified by its OIG and us. For example, in fiscal year 2000, Food and Nutrition Service was, for the first time, able to estimate its gross accounts receivable and related estimate of uncollectible amounts resulting from over-issued benefits in its Food Stamp Program. Further, for the first time since credit reform agencies were able to estimate and reestimate loan subsidy costs for the department's net credit program receivables, which totaled about $74 billion as of September 30, 2001. Because of USDA's achievement in this area, along with that of other key lending agencies, this item was no longer a factor contributing to our disclaimer of opinion on the financial statements of the U.S. government.