For fiscal year  2004, offices of inspectors general (OIG) and their contract auditors  reported that the systems of 16 of the 23 CFO Act agencies did not  substantially comply with at least one of FFMIA’s three requirements— federal financial management systems requirements, applicable federal  accounting standards, or the SGL at the transaction level. While substantially more CFO Act agencies have obtained clean or  unqualified audit opinions on their financial statements, as shown in figure  2, the underlying agency financial systems remain a serious problem. Auditors provide negative assurance when they state that nothing  came to their attention during the course of their planned procedures to  indicate that these agencies’ financial management systems did not meet  FFMIA requirements. In fiscal year 2004, auditors for DOL provided an opinion, or positive  assurance, of DOL’s financial management systems’ compliance with  FFMIA. For the fiscal year 2005 financial statement audit, the  auditors plan to increase their focus on the types of reports being produced  currently by the cost system and how managers are using that information  for day-to-day operations. We look  forward to other agencies adopting similar auditing and reporting practice. OMB continues to  support the requirement for negative assurance of FFMIA compliance. Nonintegrated Financial Management Systems

The CFO Act calls for agencies to develop and maintain integrated  accounting and financial management systems that comply with federal  systems requirements and provide for (1) complete, reliable, consistent,  and timely information that is responsive to the financial information needs  of the agency and facilitates the systematic measurement of performance;  (2) the development and reporting of cost management information; and  (3) the integration of accounting, budgeting, and program information. For instance, the U.S. For example, in fiscal year 2003, auditors for the Department of  Transportation (DOT) reported that the department had not implemented  effective processes to reconcile transactions with other federal agencies. OMB continues to move forward on new  initiatives to enhance financial management and provide results-oriented  information in the federal government. Furthermore, the continuing leadership and  support of Congress will be crucial to sustaining momentum in the  reformation of financial management in the federal government. As shown by the FFMIA-related problems reported in agency audit reports,  federal financial management systems are not currently able to provide  federal managers with the financial data needed for effective day-to-day  management of their programs or for efficient external reporting. As we  have stated in prior reports, the auditors we have interviewed expressed  concerns about providing positive assurance when reporting on agency  systems’ FFMIA compliance because of their belief that the meaning of  substantial compliance needs to be clarified. Finally, we continue  to believe that a statement of positive assurance is a statutory requirement  under the act.
Why GAO Did This Study

The ability to produce the data needed to efficiently and effectively manage the day-to-day 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 (SGL). FFMIA also requires GAO to report annually on the implementation of the act.

What GAO Found

While most CFO Act agencies have obtained clean or unqualified audit opinions on their financial statements, the underlying financial systems remain a serious problem. Agencies still lack the capacity to create the full range of information needed for effective day-to-day management. In fiscal year 2004, auditors for 16 of the 23 CFO Act agencies reported that agencies' financial management systems failed to comply with FFMIA. Primarily six types of problems related to agencies systems were identified in the audit reports. These same types of problems have been consistently reported for agencies with noncompliant systems for a number of years. GAO views these problems with agency financial systems to be a significant challenge to improving the management of the federal government. Auditors for six agencies provided negative assurance on systems' FFMIA compliance for fiscal year 2004. This means that nothing came to their attention to indicate that financial management systems did not meet FFMIA requirements. OMB's current reporting guidance calls for negative assurance; however, 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 (DOL) provided positive assurance by reporting that DOL's financial management systems substantially complied with FFMIA requirements. In fiscal year 2005, DOL auditors plan to enhance their audit procedures to focus on the reliability and use of managerial cost information. GAO looks forward to other auditors adopting a similar reporting practice that adds more value. In addition, auditors have expressed concern about providing positive assurance because of the need to clarify the meaning of substantial compliance. OMB continues to move ahead on other 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.