	CFO Act Enacted to Address Longstanding Problems

Prior to passage of the CFO Act in 1990, the seemingly never ending  disclosures of fraud, waste, abuse, and mismanagement in federal  programs painted a picture of a government unable to manage its  programs, protect its assets, or provide taxpayers with the effective and  economical services they expect. In the  1980s, many states began producing financial reports based on generally  accepted accounting principles to provide a more complete picture of  their financial situation. GPRA was  followed by the Government Management Reform Act of 1994 (GMRA),  which made permanent the pilot program in the CFO Act for annual  audited agency-level financial statements, expanded this requirement to all  CFO Act agencies, and established a requirement for the preparation and  audit of governmentwide consolidated financial statements. The CFO Act Mandated Numerous Changes

The enactment of the CFO Act represented a broad-based recognition that  federal financial management was in great need of fundamental reform. The systematic  measurement of performance, the development of cost information, and  the integration of financial management systems are some of the financial  management practices called for by the CFO Act that, if properly  implemented, will significantly improve financial management throughout  the federal government. Important Progress Made to Achieving CFO Act Goals

The federal government has made substantial progress in financial  management in the 15 years since the enactment of the CFO Act. For example, improved financial performance is one of the six  governmentwide initiatives in the President’s Management Agenda (PMA). Measured in terms of coming to the job with a proven track record  in financial management, the background of individuals selected for these  positions has improved tremendously over the past 15 years. Improving Financial Management Systems and Operations—Since 1990,  progress has been made towards improving financial management systems  in the federal government. Unqualified audit opinion for CFO Act agencies financial statements have  grown from 6 in fiscal year 1996 to 18 in fiscal year 2005. Improvements in  timeliness have been even more dramatic this year. The CFO Act calls for agency financial  statements to be issued no later than March 31st, which is 6 months after  the fiscal year end, and in the earlier years some agencies were unable to  meet that timeframe. Preparing Performance and Accountability Reports—Another clear  indication of progress to date is the preparation of the annual Performance  and Accountability Reports (PAR) by CFO Act agencies. The  Department of Education’s Student Financial Aid Programs, the Federal  Aviation Administration’s Financial Management, and the Department of  Agriculture’s Forest Service Financial Management all sustained  improvements in financial management and internal control weaknesses  and thus warranted removal. Challenges Remain to Fulfilling the Objectives of the CFO Act

While there has been marked progress in financial management, as I have  just highlighted, a number of challenges still remain. The principal  challenges remaining are (1) modernizing financial management systems,  (2) improving financial reporting, (3) building a financial management  workforce for the future, (4) addressing long-standing internal control  weaknesses, and (5) ensuring the continuity of financial management  reform. The end goal is the establishment of  a fully functioning CFO operation that includes (1) modern financial  management systems that provide, reliable, timely, and useful information  to support day-to-day decision-making and oversight and for the  systematic measurement of performance; (2) a cadre of highly qualified  CFOs and supporting staff; and (3) sound internal controls that safeguard  assets and ensure proper accountability. While the problems are much more severe at some  agencies than at others, the nature and severity of the problems indicate  that overall, management at most CFO Act agencies do not yet receive the  complete range of information needed for accountability, performance  management and reporting, and decision making. Given the long-term nature of the comprehensive changes  needed and challenges still remaining to fully realize the goals of the CFO  Act, it is unlikely they will all occur before the end of the current  administration’s term. While early on some were skeptical, the CFO Act has  dramatically changed how financial management is carried out and the  value placed on good financial management across government.
Why GAO Did This Study

In 1990, the Chief Financial Officers (CFO) Act, heralded as the most comprehensive financial management reform legislation in 40 years, was enacted. The Act's goal is to improve management through reliable, useful, and timely financial and performance information for day-to-day decisionmaking and accountability. This testimony outlines the legislative history of the CFO Act, and its key elements, progress to date in implementing the Act, and the challenges for the future. Prior to passage of the CFO Act, the seemingly never ending disclosures of fraud, waste, abuse, and mismanagement in federal programs painted a picture of a government unable to manage its programs, protect its assets, or provide taxpayers with the effective and economical services they expect. The enactment of the CFO Act represented a broad-based recognition that federal financial management was in great need of fundamental reform. The Act mandated a financial management leadership structure; required the preparation and audit of annual financial statements; called for modernized financial management systems and strengthened internal control; and required the systematic measurement of performance, the development of cost information, and the integration of program, budget, and financial systems.

What GAO Found

In the 15 years since the enactment of the CFO Act, the federal government has made substantial progress in strengthening financial management. The past 3 administrations have all made financial management reform a priority. Improved financial management has been one of the cornerstones of the President's Management Agenda from the outset of the current administration. There has been a clear cultural change in how financial management is viewed and carried out in the agencies and a recognition of the value and need for good financial management throughout government, which was not the case in 1990. There are now qualified CFOs across government, who bring to the job proven track records in financial management. Financial management systems and internal control have been strengthened. Generally accepted government accounting standards have been developed. For fiscal year 2005, 18 of 24 CFO agencies received clean audit opinions on their financial statements, up from just 6 in fiscal year 1996. This year's audited financial statements were issued in just 1 and 1/2 months after the close of the fiscal year as opposed to 5 months, which is the deadline in the Act. Agencies are also now preparing performance and accountability reports that tie together financial and performance information. Though not yet auditable, primarily because of problems in the Department of Defense, comprehensive annual consolidated financial statements are being issued in 2 and 1/2 months as opposed to the 6-month timeframe allowed in the Act. While there has been marked progress in the past 15 years and the CFO Act has proven itself as the foundation for financial accountability, GAO has identified five principal challenges to fully realizing the world-class financial management anticipated by the CFO Act. The need to: (1) modernize and integrate financial management systems to provide a complete range of financial and cost information needed for accountability, performance reporting, and decision making, with special emphasis on the Department of Defense, which has deeply-rooted systems problems, (2) build a more analytic financial management workforce to support program managers and decisionmakers, (3) solve long-standing internal control weaknesses, (4) enhance financial reporting to provide a complete picture of the federal government's overall performance, financial condition, and future fiscal outlook, and (5) ensure that financial management reform is sustained given the leadership changes that occur at the end of any administration and the long-term nature of many of the ongoing reform initiatives. The continuing strong support of the Congress has been a catalyst to the important progress that has already taken place and will be essential going forward.