The primary goal of FFMIA is for agencies to improve financial  management systems so that financial information from these systems can  be used to help manage agency programs more effectively and enhance  the ability to prepare auditable financial statements. However, in light of the significant  deficiencies and problems that auditors are still reporting, we remain  concerned that criteria for substantial compliance with FFMIA  requirements are not well defined or consistently implemented across the  24 CFO Act agencies. In its commentary and summary of  Justice’s annual financial statement for fiscal year 2007, the Justice IG  made the following comment about Justice’s financial system  environment: “Inadequate, outdated, and in some cases non-integrated  financial management systems do not provide certain automated  financial transaction processing activities that are necessary to support  management’s need for timely and accurate financial information  throughout the year.”
In the IG’s 2007 list of top management and performance challenges  facing Justice, the IG also reported that “the Department’s efforts over  the past few years to implement the Unified Financial Management  System (UFMS) to replace the seven major accounting systems  currently used throughout the Department have been subject to fits and  starts. We have previously reported that auditors have expressed a need for  clarification on the definition of “substantial compliance” with FFMIA. A-127, we reemphasized our concerns with, among other things, the need  for an appropriate definition of substantial compliance that focuses on  financial management systems’ capabilities beyond financial statement  preparation. Nevertheless, agency efforts  far too often result in systems that do not meet their cost, schedule, and  performance goals. For example, modernization efforts at DOD, HHS, and DHS have  been hampered by agencies not following disciplined processes. Over a decade  has passed since the enactment of FFMIA, and the majority of agencies  continue to lack financial management systems—including processes,  procedures, and controls—that substantially comply with the  requirements of the act, even though the majority of agencies are  achieving “clean” audit opinions. Accordingly, we reiterate our prior  recommendation for OMB to clarify its guidance on the meaning of  “substantial compliance” with FFMIA. In addition, we  analyzed the results and information obtained from the recent Comptroller  General’s forum on improving the federal government’s financial  management systems. Moreover, FFMIA requires  implementation of the U.S. Government Standard General Ledger (SGL). Even with these improvements, the Senate Committee on Governmental  Affairs, which considered the legislation resulting in FFMIA, stated that  federal agencies’ financial management systems were inadequate and  could be improved by creating a means to use the audit process  established by the CFO Act to assure that federal agencies would  implement and maintain financial management systems that use the  applicable federal financial management systems requirements and federal  accounting standards. Financial Management: Achieving FFMIA Compliance Continues to  Challenge Agencies. Financial Management: Sustained Efforts Needed to Achieve FFMIA  Accountability. Financial Management: Effective Implementation of FFMIA Is Key to  Providing Reliable, Useful, and Timely Data. Financial Management: Implementation of the Federal Financial  Management Improvement Act of 1996.
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 many federal agencies. To help address this challenge, the Federal Financial Management Improvement Act of 1996 (FFMIA) requires the 24 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. This report, primarily based on GAO and inspectors general reports and agencies' performance and accountability reports, discusses (1) the reported status of agencies' systems compliance with FFMIA and overall federal financial management improvement efforts and (2) the remaining challenges to achieving the goals of FFMIA.

What GAO Found

For fiscal year 2007, auditors reported 13 of 24 CFO Act agencies' financial management systems were not in substantial compliance with FFMIA requirements. For these 13 agencies, auditors reported a number of problems, as shown below, that illustrate how agency financial management systems-- including processes, procedures, and controls--are not providing reliable, useful, and timely information to help manage agency programs more effectively. As discussed in prior FFMIA reports, GAO remains concerned that the criteria for assessing substantial compliance with FFMIA are not well defined or consistently implemented across agencies. In addition, the majority of participants at a Comptroller General's forum on improving federal financial management systems said there is little agreement on the definition of "substantial compliance." To address GAO's prior recommendation, OMB is in the process of revising its guidance, and GAO has reemphasized its concerns with the need for an appropriate definition of substantial compliance that focuses on financial management systems' capabilities beyond financial statement preparation. Agencies' efforts to implement new systems far too often result in systems that do not meet cost, schedule, and performance goals. Recent modernization efforts by some agencies have been hampered by not following disciplined processes. To help avoid implementation problems, OMB continues to make progress on its financial management line of business initiative, which promotes business-driven, common solutions for agencies to enhance federal financial management, but additional efforts are needed.