Compliance with federal financial management systems requirements, applicable accounting standards, and the SGL are all necessary to help achieve these goals. Fiscal Year 1997 Results

The majority of federal agencies’ financial management systems do not meet current accounting standards and systems requirements and cannot, as currently operated, provide uniform and reliable financial information for managing government operations. In their fiscal year 1997 audit reports, auditors for 19 of 23 CFO agencies reported that the agencies’ financial systems did not substantially comply with FFMIA’s requirements. For example, an agency could have an unqualified opinion on its financial statements and no material weaknesses in internal control indicating that the financial statements are prepared in accordance with applicable federal accounting standards, yet have financial management systems that are not in substantial compliance with financial management systems requirements. As we testified on April 1, 1998, there are serious financial management improvement challenges facing the federal government. Agencies must overcome significant financial systems weaknesses, problems with fundamental recordkeeping, incomplete documentation, and weak internal controls (including computer controls). Agencies’ Determination of Agreement With FFMIA Compliance

Once the auditor of an agency reports on FFMIA compliance, the agency head is responsible for determining, based on a review of the auditor’s report and any other relevant information, whether the agency’s financial management systems comply substantially with the three requirements.The agency head is required to make this determination no later than 120 days after (1) the receipt of the auditor’s report or (2) the last day of the fiscal year following the year covered by the audit, whichever comes first. The executive branch recognizes the extent and severity of the reported financial management deficiencies and that addressing them will require concerted improvement efforts across government. Status of Federal Accounting Standards

Using a due process approach, FASAB has developed accounting standards for the federal government. In addition, FASAB has recommended Statement of Recommended Accounting Standard No. However, agencies have indicated concerns with implementing new accounting requirements imposed by accounting standards which became effective in fiscal year 1998. Several agencies have expressed concerns about having the available resources to prepare the Statement. Agencies are further challenged by the condition of many of the government’s critical financial systems applications, which are not designed to meet current accounting standards and systems requirements. These systems will need to be replaced or significantly upgraded in the next 5 years. We recently reported that the CFO agencies’ progress in addressing Year 2000 computing issues continues at a slow pace. Agencies are appropriately focusing their priorities on Year 2000 compliance issues, and consequently, other efforts to improve financial management systems may be delayed, including efforts to address FFMIA noncompliance. 2. 3.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed information concerning: (1) compliance with the Federal Financial Management Improvement Act of 1996's (FFMIA) requirements, including whether the Chief Financial Officers (CFO) agencies' financial statements have been prepared in accordance with applicable accounting standards; and (2) the adequacy of applicable accounting standards for the federal government.

What GAO Found

GAO noted that: (1) in their fiscal year (FY) 1997 audit reports, auditors for 19 of the 23 CFO agencies reported that the agencies' financial systems did not comply substantially with FFMIA's requirements, primarily due to noncompliance with systems requirements; (2) auditors reported that the financial systems of 9 of those 19 agencies were noncompliant with all three FFMIA requirements; (3) the serious problems described in the auditors' reports limit the reliability, usefulness, and timeliness of financial information needed to effectively manage government operations; (4) the first-ever audit of the governmentwide consolidated financial statements indicates that many agencies are not yet meeting applicable accounting standards; (5) it was unable to render an opinion on the FY 1997 consolidated financial statements for the government due to significant financial systems weaknesses, problems with fundamental recordkeeping, incomplete documentation, and weak internal controls, including computer controls; (6) agencies generally recognize the extent and severity of their financial management deficiencies, and there are several efforts under way to address these problems across government; (7) the Federal Accounting Standards Advisory Board (FASAB) has sucessfully developed a set of accounting standards; (8) FASAB is also considering additional accounting matters relevant to financial statements for the federal government, including liabilities associated with social insurance entitlement programs; (9) agencies' efforts to improve financial management are challenged by implementing new accounting standards and updating financial management systems; (10) several agencies have expressed concerns regarding their ability to effectively implement the accounting requirements, which became effective in FY 1998; (11) in addition, as the CFO agencies move toward a more effective system of financial management, a significant challenge is the poor status of financial management systems, which were not designed to meet current accounting standards and systems requirements; (12) agencies' progress in implementing new accounting standards and improving reported financial management weaknesses will be affected by competing demands associated with year 2000 computer conversion issues; and (13) agencies are necessarily making year 2000 compliance a priority, and longer-term efforts to address financial management systems are expected to be delayed.