INFORMATION TECHNOLOGY: 

Treasury’s Continued Progress In Achieving 

Compliance With The Federal Financial 

Management Improvement Act 

OIG-03-025 December 12, 2002 

Office of Inspector General

******* 

The Department of the Treasury 
Contents 

Audit Report....................................................................................................2 

 Results in Brief...............................................................................................3 

 Background ...................................................................................................4 

Finding and Recommendations .........................................................................5 

Treasury Continues To Strengthen Its Remediation Process and Oversight........5 

 Recommendations......................................................................................9 

Appendices

 Appendix 1: Objective, Scope, and Methodology.........................................11 

 Appendix 2: Management Comments.........................................................12 

 Appendix 3 Major Contributors To This Report...........................................15 

 Appendix 4: Report Distribution.................................................................16 

 Abbreviations

 ACE Automated Commercial Environment 

 CFO Chief Financial Officer 

 Customs United States Customs Service 

 DCFO Deputy Chief Financial Officer 

FFMIA Federal Financial Management Improvement Act of 1996 

 FMS Financial Management Service 

 IRS Internal Revenue Service 

 Mint United States Mint 

OCC Office of the Comptroller of the Currency

 OIG Office of Inspector General 

 OMB Office of Management and Budget 

 SGL United States Government Standard General Ledger 

 TIGTA Treasury Inspector General for Tax Administration 

 Treasury Department of the Treasury 

 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

Page 1 
OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

Page 2 

Barry K. Hudson 

Acting Deputy Chief Financial Officer 

The Office of Inspector General’s (OIG) Annual Audit Plan for Fiscal 

Year 2002 included the planned audit, Treasury’s Progress In 

Achieving Compliance With the Federal Financial Management 

Improvement Act. The Federal Financial Management Improvement 

Act of 1996 (FFMIA) requires that “in general, each agency shall 

implement and maintain financial management systems that 

comply substantially with Federal financial management system 

requirements, applicable Federal accounting standards, and the 

United States Government Standard General Ledger (SGL) at the 

transaction level.” In addition, FFMIA requires that the OIG report 

whether the Department of the Treasury’s (Treasury) financial 

management systems are in substantial compliance with these 

general requirements, as part of the annual audit of the 

Department’s financial statements pursuant to the Chief Financial 

Officers Act and the Government Management Reform Act. 

The objective of this audit was to determine if the Department 

provided adequate oversight to the bureaus, whether remediation 

plans were developed, and whether milestones for material 

non-conformances were achieved. Overall, we found that the 

Department provided significant guidance to the bureaus, enabling 

bureaus to develop remediation plans to address material 

non-conformances. In addition, the Department obtained and 

reviewed remediation plans to determine if corrective actions were 

reasonable and if milestones were being achieved. We evaluated 

the remediation plans submitted to the Deputy Chief Financial 

Officer (DCFO) by the United States Customs Service (Customs), 

the Financial Management Service (FMS), the United States Mint 

(Mint), and the Office of the Comptroller of the Currency (OCC). In 
addition, we relied on the Treasury Inspector General for Tax 

Administration’s (TIGTA) review of the Internal Revenue Service’s 

(IRS) remediation process. A more detailed description of our 

objective, scope, and methodology is provided in Appendix 1. 

Results in Brief

Treasury has made significant progress in achieving compliance 

with FFMIA to correct and resolve deficiencies with its financial 

management systems. For FFMIA material non-conformances 

reported by Treasury as of September 30, 2001, we identified that 

remediation plans were developed and milestone dates were 

established. Further, bureaus were meeting milestone dates 

established in remediation plans. We also noted that the 

Department was providing adequate oversight for bureaus’ 

remediation processes. For instance, both the Department and the 

OIG found that corrective action milestone dates for Customs 

non-conformance were extended because funding was insufficient. 

Once the lack of funding was noted, the Department discussed this 

extension with the Office of Management and Budget (OMB) and 

with Customs to determine the appropriateness of the extension. 

We also found that the Department can continue to strengthen its 

remediation process. 

We coordinated our audit efforts with TIGTA regarding IRS’ FFMIA 

process. The TIGTA review of the IRS’ remediation plans detailed 

no instances of missed target dates. However, target dates were 

extended with explanation. 

Our report includes recommendations that, in our opinion, will 

assist Treasury in continuing to strengthen its oversight. 

Specifically, we are recommending that the DCFO (1) ensure that 

current FFMIA process guidance is updated, as needed, to provide 

additional detailed information required for the submission of 

remediation plans; (2) continue to develop the expertise necessary 

to allow for a more detailed assessment of remediation plans for 

reasonableness and effectiveness of planned corrective actions; 

and (3) seek opportunities to ensure that conditions that allowed 

for existing material weaknesses are addressed and remedied 

throughout Treasury, thus helping to reduce or eliminate future 

occurrences. 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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The DCFO’s response to our draft report concurred with our finding 

and recommendations. The DCFO implemented two of the three 

recommendations, and will implement the final recommendation 

when any new instances of FFMIA non-conformance occur. Their 

response is summarized and evaluated in the body of this report 

and included, in detail, in Appendix 2, Management Comments.

Background 

Agencies are required by 31 U.S.C. 3512, the FFMIA, to 

implement and maintain financial management systems that 

substantially comply with Federal financial management system 

requirements, applicable Federal accounting standards, and the 

SGL. To help accomplish this objective, the head of an agency is 

required to develop a remediation plan, outlining the methodology 

and resources for resolving identified material non-conformances. 

The FFMIA also requires that an agency correct financial 

management system deficiencies within three years from the time 

the non-conformance is identified. Per FFMIA mandate, the agency 

head designated the DCFO to be responsible for bringing the

agency’s financial management systems into compliance. The 

FFMIA also requires bureaus to prepare remediation plans to rectify 

material non-conformances. Treasury submits plans requiring 

longer than three years to remedy material non-conformances to 

OMB. 

In September 2000, the OIG performed a review of Treasury’s 

implementation of FFMIA.1

 In that report, we found that Treasury 

needed improvement in correcting and resolving deficiencies with 

its systems. We noted that bureaus either failed to provide 

remediation plans to the Department, or that the remediation plans 

submitted lacked information necessary to effectively implement 

and monitor plan progress. In addition, we identified that the 

Department’s program to oversee and implement FFMIA was not 

effective. 

As of September 30, 2001, five Treasury bureaus (Customs, FMS, 

IRS, Mint, and OCC) were not in substantial compliance with 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

Page 4 

1

 Final Report on Implementation of the Federal Financial Management Improvement Act, dated 

September 28, 2000 (OIG-00-124). 
FFMIA.2

 A total of eight material instances of non-conformances 

were identified at these bureaus. We reviewed the remediation 

plans for Customs, FMS, Mint, and OCC. In March of 2002, 

TIGTA reported on the progress the IRS has made to remedy its 

material non-conformances. The following describes the instances 

of non-compliance for each of the five bureaus as of 

September 30, 2001: 

• Customs – Core financial systems do not provide complete and 

accurate data for the preparation of audited financial 

statements. 

• FMS – General computer control weaknesses exist at each of 

the data centers. 

• IRS – (1) For erroneous restricted interest, current system 

limitations require manual computations; (2) detailed 

transactional data is needed to support custodial financial 

reporting of revenue; and (3) improvement is needed for the 

annual financial statement preparation and audit processes. 

• Mint – (1) Administrative control problems exist in conjunction 

with operating its Consolidated Information System; and (2) 

weaknesses exist in the system security area. 

• OCC – Financial management systems do no comply with 

Federal financial management system requirements.

Findings and Recommendations

Finding 1 Treasury Continues To Strengthen Its Remediation 

Process and Oversight 

The Department is providing adequate oversight to the bureaus in 

both the development and review of remediation plans to correct 

material non-conformances. The Department provided guidance on 

completing remediation plans and reviewed remediation plans when 

submitted for approval. Once the Department reviewed the 

corrective actions detailed in the remediation plans, it provided 

correspondence to the bureaus regarding any discrepancies noted. 

The Department can continue to strengthen its remediation process 

by updating current FFMIA process guidance, as necessary, to 

provide additional detailed information for the submission of future 

 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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2

 Department of the Treasury Accountability Report, Fiscal Year 2001. 
remediation plans. The additional detail required can improve the 

remediation process and more fully support remediation plans. 

Adequate Oversight For The Remediation Process

We found that the Department is providing adequate oversight for 

the remediation of material non-conformances in accordance with 

FFMIA. The FFMIA mandates an agency to submit a remediation 

plan when its financial systems are not in substantial compliance 

with Federal accounting standards, the SGL at the transaction 

level, or Federal financial management system requirements. The 

Department performs an assessment of the remediation plans 

submitted by the bureaus. Once the remediation plans are 

reviewed, the Department provides feedback to the bureaus by 

either concurring or not concurring with the reasonableness of 

corrective actions. Any discrepancies are identified in an official 

memorandum, and the remediation plan is returned to the bureau 

for revision. The Department relies on its general knowledge of the 

material weakness to determine if corrective actions are 

reasonable. Therefore, reliance is placed on the bureaus to ensure 

the technical proficiency of the corrective actions in a remediation 

plan. 

The OMB coordinates with the Department on an as needed basis 

regarding any weaknesses or deficiencies identified in remediation 

plans that are submitted. In addition, the Department should 

continue to enhance its expertise in reviewing the reasonableness 

of remediation plans. Also, the Department needs to ensure that 

the plans to remedy the material non-conformances are designed to 

adequately address the weakness so that they do not recur 

elsewhere within Treasury. 

Remediation Plans Did Not Contain All Required Information

The OMB's Circular A-11 requires that agencies, in their financial 

management plan, identify FFMIA remediation activities planned 

and underway, and describe the resources, remedies, interim target 

dates, and officials responsible for bringing systems into substantial 

compliance with FFMIA. The Department established and provided 

guidance to the bureaus regarding the preparation and submission 

of remediation plans consistent with OMB Circular A-11. Although 

the Department’s guidance contained the general process that 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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bureaus must follow for preparing and submitting remediation 

plans, the guidance does not provide the level of expected detail 

necessary to more effectively review human and capital resource 

requirements and determine how corrective actions will be 

validated. 

Our review of the bureaus’ remediation plans showed that the 

plans submitted by FMS and OCC completely addressed the areas 

required by OMB Circular A-11. However, Customs remediation 

plans lacked how it would independently verify that the corrective 

actions were completed. We also noted that Mint’s remediation 

plans submitted for the third and fourth quarters in fiscal year 2002 

did not contain budgetary funding information. 

Established Milestone Dates

Milestone dates are required to be included in remediation plans so 

bureaus and the Department can track the progress in correcting 

material non-conformances. We found that Customs, FMS, Mint, 

and OCC remediation plans contained current milestone dates. The 

TIGTA review of the IRS’ remediation plans identified no instances 

of missed target dates, but target dates were extended with 

explanation. 

For Customs, milestone dates for corrective actions for the 

Automated Commercial Environment (ACE) and SAP were 

scheduled to be completed by October 2003. In February 2001, 

the Department issued a memorandum to OMB requesting a wavier 

to the FFMIA’s requirement for bringing Customs’ and the IRS’

financial management systems into substantial compliance within 

three years. The OMB responded and concurred with this request. 

Customs anticipated that due to funding issues, further 

development of the subsidiary ledger, along with the 

implementation of SAP release 3, was needed to address the 

materiality of its core financial system weakness. To do this, 

Customs extended the milestone dates for corrective actions for 

ACE and SAP to October 2004, because funding for these projects 

was insufficient. In addition, Customs extended these milestone 

dates without the consent of Treasury and OMB. Also, the lack of 

funding may cause a delay in completing future ACE and SAP 

milestones. The Department needs to continue to closely monitor 

milestone completion dates for all remediation plans submitted by 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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the bureaus. For fiscal year 2003, the Department will be placing 

greater emphasis on linking spending plans with remediation plans 

to anticipate difficulties in meeting scheduled milestones. 

The Federal Financial Management Improvement Act of 1996, 

which applies to the agency Chief Financial Officer (CFO), as 

defined in Section 901(b) of title 31 U.S.C., is intended to: 

• Provide for consistency of accounting by an agency from one 

fiscal year to the next, and uniform accounting standards 

throughout the Federal Government. 

• Require Federal financial management systems to support full

disclosure of Federal financial data, including the full costs of 

Federal programs and activities, to the citizens, the Congress, 

the President, and agency management, so that programs and 

activities can be considered based on their full costs and merits. 

• Increase the accountability and credibility of Federal financial 

management. 

• Improve performance, productivity, and efficiency of Federal 

Government financial management. 

• Establish financial management systems to support controlling 

the cost of Federal Government. 

• Build upon and complement the CFO Act of 1990 (Public Law 

101-576; 104 Stat. 2838), the Government Performance and

Results Act of 1994 (Public Law 103-356; 108 Stat. 3410). 

• Increase the capability of agencies to monitor execution of the 

budget by more readily permitting reports that compare 

spending of resources to results of activities. 

In addition, FFMIA mandates that each agency implement and 

maintain financial management systems that comply substantially 

with Federal financial management system requirements, applicable 

Federal accounting standards, and the SGL at the transaction level. 

The development and implementation of remediation plans is 

critical to Treasury’s overall financial management objectives. 

Failure to develop and implement adequate remediation plans may 

result in the Department’s inability to remedy its FFMIA related 

financial system deficiencies; the continued reporting of material 

weaknesses in bureaus’ financial statements; and the continued 

use of non-FFMIA compliant accounting procedures which do not 

accurately portray financial results of the Federal Government.

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Recommendations

The DCFO should: 

1. Ensure that current FFMIA process guidance is updated, as 

necessary, to provide additional detailed information required for 

the submission of remediation plans (i.e., the level of expected 

detail necessary to effectively review the need for resource 

requirements (human and capital) and how corrective actions 

will be validated). 

Management Response: 

Should any new instances of FFMIA non-conformances arise, 

the DCFO will ensure that appropriate and comprehensive 

guidance is issued and acted upon. 

OIG Comment: 

The OIG agrees that the steps the Department will take satisfies 

the intent of the recommendation. 

2. Continue to develop the expertise necessary to allow for a more 

detailed assessment of remediation plans for reasonableness 

and effectiveness of planned corrective actions. 

Management Response: 

Because remediation plans change due to availability of funding 

and changes in systems development priorities, the DCFO 

ensures that revisions are properly supported and that sufficient 

interim milestones have been included in the revisions. The 

DCFO requests additional information for these revisions as part

of their quarterly evaluation of progress reports from the 

bureaus. In addition, the DCFO continues to improve its 

oversight by ensuring that activities identified in action plans 

coincide with spending plans. 

OIG Comment:

The OIG agrees that the steps taken by the Department satisfies 

the intent of the recommendation. 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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3. Seek opportunities to ensure that conditions that allowed for 

existing material weaknesses are addressed and remedied 

throughout Treasury, thus helping to reduce or eliminate future 

occurrences. 

Management Response: 

Various parts of the DCFO organization are actively involved in 

enforcing front-end controls to minimize the possibility of 

additional instances of non-compliance with FFMIA. For 

instance, the DCFO tracks bureau progress in resolving routine 

audit findings and recommendations in all areas to ensure that 

routine issues are resolved to the extent possible before they 

become more significant problems. The DCFO staff also works 

closely with both bureau and departmental systems security 

offices to help precipitate needed improvements in this critical 

area. 

OIG Comment:

The OIG agrees that the steps taken by the Department satisfies 

the intent of the recommendation. 

* * * * * * 

I would like to extend our appreciation to the Department for the 

cooperation and courtesies extended to my staff during the review. 

If you have any questions, please contact me at (202) 927-5007, 

or Joseph Maranto, Audit Manager, at (202) 927-5014. 

/s/ 

Edward G. Coleman, Director 

Office of Information Technology Audits 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 1 

Objective, Scope, and Methodology 

The overall objective of this review was to determine whether 

remediation plans were developed and the milestones established 

to resolve material non-conformances were achieved. This 

objective was accomplished by evaluating whether (1) the bureaus 

established remediation plans for all its material non-conformances 

in accordance with all laws and regulations; (2) the bureaus made 

sufficient progress in meeting milestones prescribed in its 

remediation plans; and (3) the Department is monitoring the status 

of FFMIA remediation plans for timeliness for all materially 

non-compliant bureaus. 

We evaluated the remediation plans submitted to the DCFO by 

Customs, FMS, Mint, and OCC. In addition, we relied on the audit 

work performed by TIGTA for IRS’ remediation plans. The 

fieldwork for this report was performed at the bureaus and at the 

departmental offices in the Washington, DC, area during 

October and November 2002. 

We conducted our audit in accordance with generally accepted 

government auditing standards. 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 2 

Management Comments 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 2 

Management Comments 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 2 

Management Comments 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 3 

Major Contribution To This Report

Office of Information Technology Audits

Edward G. Coleman, Director, IT Audits 

Joseph Maranto, IT Audit Manager 

Stacey Ansell, Lead Auditor 

Sharell Matthews, IT Auditor 

Tom Tsang, Referencer 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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Appendix 4 

Report Distribution 

The Department of the Treasury

Deputy Chief Financial Officer 

Office of Accounting and Internal Control

Office of Management and Budget

Office of Inspector General Budget Examiner 

Treasury’s Continued Progress In Achieving Compliance With The Federal 

Financial Management Improvement Act (OIG-03-025) 

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