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. Most agency systems, though, are not yet substantially in  compliance with FFMIA’s requirements. As shown in figure 3, IGs and  their contract auditors reported for fiscal year 2006 that 17 of the 24 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. Problems Reported by Agency Auditors

Based on our review of the fiscal year 2006 audit reports for the 17  agencies reported to have systems not in substantial compliance with one  or more of FFMIA’s three requirements, we identified six primary reasons  for agency systems not being compliant:    nonintegrated financial management systems,   inadequate reconciliation procedures,   lack of accurate and timely recording of financial information,    noncompliance with the SGL,   lack of adherence to federal accounting standards, and    weak security controls over information systems. Some agencies have made little progress addressing these areas. 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. This problem is particularly serious at the Department of  Defense. To help provide a governmentwide solution, OMB has developed  the financial management line of business (FMLOB) initiative. As shown in figure 11, all of the agencies’ summarized remediation plans  included corrective actions. However, these efforts  far too often result in systems that do not meet their cost, schedule, and  performance goals. Furthermore, modernization efforts at DHS and DOJ have been hampered  because these agencies did not follow best practices in systems  development and implementation efforts (commonly referred to as  disciplined processes). VI) on a draft of this report, OMB  agreed with our assessment that while federal agencies have continued to  make progress in financial management, many agencies still need to  improve their financial systems so that reliable, useful, and timely financial  management information is available for day-to-day operations. A-123 initiatives. We are also sending copies to the  Director of the Office of Management and Budget, the heads of the 24 CFO  Act agencies in our review, and agency CFOs and inspectors general.
Why GAO Did This Study

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, discusses (1) the problems that continued to affect agencies systems' FFMIA compliance in fiscal year 2006 and (2) the initiatives under way to help move federal financial management toward FFMIA compliance.

What GAO Found

Federal agencies have continued to make progress in meeting the requirements of FFMIA since the passage of the law in 1996. Most agencies though, have not yet progressed to the stage that their systems are substantially compliant, and some agencies have made little progress. Accordingly, agencies continue to fall short in their attempts to establish the financial systems needed to create the full range of information needed for effective day-to-day management. In fiscal year 2006, auditors for 17 of the 24 CFO Act agencies reported that agencies' financial management systems did not substantially comply with at least one of the three FFMIA requirements. Based on audit reports, GAO identified six types of problems primarily related to agencies' systems. These problems with agency financial systems remain a significant obstacle to supporting effective management of the federal government. With regard to improvement initiatives, GAO noted continued progress in two key areas: (1) agencies' required remediation plans and (2) the Office of Management and Budget's (OMB) efforts to address system implementation problems. All 12 of the remediation plans GAO reviewed included corrective actions, but several were missing key elements. Moreover, agencies continue to struggle with efforts to modernize their financial management systems. This problem is particularly acute at the Department of Defense. Agency modernization efforts have been consistently hampered by failure to follow best practices in systems development and implementation, commonly referred to as disciplined processes. As a result, these efforts far too often do not meet cost, schedule, and performance goals. To help address these problems, OMB has demonstrated continued progress in the implementation of the financial management line of business initiative. However, additional steps forward are needed to provide a foundation for this initiative.