GAO

United States General Accounting Office

Report to Congressional Committees

September 2000 FINANCIAL 

MANAGEMENT

Federal Financial 

Management 

Improvement Act 

Results for Fiscal Year 

1999

GAO/AIMD-00-307

Page 1 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

United States General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-286104 Letr

September 29, 2000

The Honorable Fred Thompson

Chairman

The Honorable Joseph I. Lieberman

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Dan Burton

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform

House of Representatives

The inability to produce the data needed to efficiently and effectively 

manage the day-to-day operations of the federal government and provide 

accountability to taxpayers historically has been a major weakness at most 

of the largest federal agencies. The central challenge in generating such 

data is overhauling inadequate and outdated accounting and financialrelated management information systems. To help focus attention on this 

challenge, the Congress passed the Federal Financial Management 

Improvement Act of 1996 (FFMIA),1

 which requires the 24 major 

departments and agencies named in the Chief Financial Officers (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 U.S. Government 

Standard General Ledger (SGL)2

 at the transaction level. 

1

Title VIII of Public Law 104-208 is entitled Federal Financial Management Improvement Act 

of 1996. 

2

The SGL provides a standard chart of accounts and standardized transactions that agencies 

are to use in all their financial systems.
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FFMIA requires auditors to report, as part of their audit reports on the 

agencies’ annual financial statements, whether their respective financial 

management systems comply with FFMIA’s requirements. FFMIA also 

requires that we report annually on FFMIA implementation by October 1 of 

each year. Our annual report addresses (1) compliance of CFO Act 

agencies’ financial systems with FFMIA’s requirements, (2) agencies’ plans 

to bring their systems into compliance, and (3) other efforts to improve the 

government’s financial management systems. Last year, we issued the third 

of our annual reports under FFMIA, which covered fiscal year 1998.3

Results in Brief For fiscal year 1999, auditors for 21 of the 24 CFO Act agencies reported 

that the agencies’ financial systems did not comply substantially with 

FFMIA’s requirements—federal financial management systems 

requirements, applicable federal accounting standards, and the SGL. These 

results were similar to those for fiscal years 1997 and 1998. As a result, the 

vast majority of agencies’ financial management systems fall short of the 

CFO Act and FFMIA goal to provide reliable, useful, and timely information 

on an ongoing basis for day-to-day management and decision-making. 

Reasons for systems’ noncompliance include nonintegrated systems, 

inadequate reconciliation procedures, noncompliance with the SGL, lack of 

adherence to accounting standards, and weak security over information 

systems.

Although the financial management systems of most agencies do not yet 

comply with FFMIA’s requirements, the number of agencies receiving 

“clean” or unqualified audit opinions4

 is increasing. Fifteen of the 24 CFO 

Act agencies received unqualified audit opinions on their financial 

statements for fiscal year 1999, up from 12 in fiscal year 1998 and 11 in 

fiscal year 1997. Auditors of 12 of the 15 agencies that received unqualified 

opinions reported however that the agencies’ financial systems did not 

comply substantially with FFMIA’s requirements in fiscal year 1999.

3

Financial Management: Federal Financial Management Improvement Act Results for Fiscal 

Year 1998 (GAO/AIMD-00-3, October 1, 1999).

4

In an unqualified opinion, the auditor concludes that the principal statements and 

accompanying notes present fairly, in all material respects, the assets, liabilities, and net 

position of the entity at the end of the period, and the net costs, changes in net position, 

budgetary resources, and reconciliation of net costs with budgetary obligations for the 

period then ended.
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Through the rigors of the financial statement audit process and the 

requirements of FFMIA, agencies have gained a better understanding of 

their financial management weaknesses and the impetus to resolve 

problems caused by those weaknesses. At the same time, agencies are 

slowly making progress in addressing their problems. However, while an 

increasing number of agencies are receiving “clean” audit opinions on their 

financial statements, the continued widespread noncompliance with 

FFMIA shows that there is still a long way to go to reach the end game—

that is, having systems, processes, and controls that routinely generate 

reliable, useful, and timely information for managers and other 

decisionmakers.

As we testified in June,5

 many of the clean opinions were obtained through 

time-consuming, ad hoc programming and analysis of data produced by 

inadequate systems that are not integrated and often require significant 

adjustments. Such time-consuming procedures, which often represent 

“heroic efforts,” prevent financial management staff from doing other 

financial-related work such as financial analyses, which could directly 

support strategic decision-making and ultimately improve overall business 

performance. In our Executive Guide: Creating Value Through World-class 

Financial Management,

6

 we identified the success factors, practices, and 

outcomes associated with world-class financial management efforts. We 

found that many leading finance organizations have a goal to reduce the 

time spent on routine accounting activities, such as financial statement 

preparation, so that financial management staff can spend more time on 

activities such as business performance analysis or cost analysis.

5

Financial Management: Agencies Face Many Challenges in Meeting the Goals of the Federal 

Financial Management Improvement Act (GAO/T-AIMD-00-178, June 6, 2000).

6

GAO/AIMD-00-134, April 2000.
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As required by FFMIA, the 19 agencies that determined their systems were 

not in compliance during fiscal year 19987

 prepared remediation plans 

describing the actions they took or plan to take to overcome their problems 

and bring their systems into compliance.8

 We reviewed the 19 remediation 

plans and determined that while overall the plans had improved slightly 

over the fiscal year 1997 plans, some plans continued to lack specificity. 

The corrective actions in the plans were not always detailed, target dates 

were sometimes lacking, and information as to the type and amount of 

resources needed to implement the corrective actions was not included in 

several of the plans we reviewed.

The role of advisor established by FFMIA for the Office of Management and 

Budget (OMB), with respect to agency remediation plans, is important for 

ensuring that agencies prepare effective remediation plans that adequately 

address their serious financial management weaknesses. To support that 

effort, and because of the inadequacies we identified last year in agencies’ 

fiscal year 1997 remediation plans, we recommended that OMB review 

agencies’ plans for (1) detailed corrective actions that fully address 

reported problems, (2) inclusion of resource requirements, and (3) specific 

time frames needed to implement and resolve problems. OMB officials told 

us they have adopted a new approach for reviewing agencies’ remediation 

plans, which is part of a comprehensive strategy for improving federal 

financial management. The new approach includes meetings with agency 

officials to discuss integrating the agency’s plans for overhauling or 

replacing financial management systems with the agency’s information 

technology capital planning processes. OMB has started meeting with 

agency officials; however, because this approach is new, we cannot 

comment on whether it will be successful in improving agencies’ 

remediation plans and thus improving financial management in general.

7

Auditors for 21 of the 24 CFO Act agencies reported that the agencies’ systems did not 

substantially comply with FFMIA in fiscal year 1998. Two agencies did not submit 

remediation plans for fiscal year 1998 because agency management determined that their 

systems were in substantial compliance with FFMIA. While agency management 

acknowledged that the weaknesses identified by the auditors existed, they did not agree 

that the weaknesses resulted in lack of “substantial” compliance.

8

Fiscal year 1998 remediation plans, addressing instances of noncompliance with FFMIA 

identified in financial statement audits covering fiscal year 1998, were due to the Office of 

Management and Budget (OMB) in October 1999. Remediation plans covering fiscal year 

1999 instances of noncompliance are due to OMB in December 2000.
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We also recommended last year that OMB work with the agencies to ensure 

that the agencies’ financial statements are audited and issued by the 

March 1 statutory deadline. Officials from OMB, GAO, and the Department 

of the Treasury met with agencies to discuss, among other things, the 

timely preparation and audit of the agency financial statements. In 

addition, in large part due to the “heroic efforts” by many agencies, the 

number of agencies issuing their audited financial statements after March 1 

decreased from 11 for fiscal year 1997 to 5 for fiscal year 1999. Having to 

perform such “heroic efforts” in order to issue financial statements by the 

statutory deadline indicates the need for continued OMB attention.

Bringing financial management systems into compliance with the 

requirements of FFMIA is a formidable challenge. Identifying the 

appropriate corrective actions for inclusion in agencies’ remediation plans 

is just the first step toward that goal. Typically, the systems needs are 

complex and accordingly require well-considered and sophisticated efforts 

to implement. We have issued guidance to help agencies with such efforts, 

including guidance on making information technology investment 

decisions and improving information security management. Also, in order 

to aid in the selection of functional and cost-effective applications, the 

Joint Financial Management Improvement Program (JFMIP)9

 tests 

commercial off-the-shelf software for compliance with the current systems 

requirements. FFMIA compliance guidance is also contained in an 

exposure draft of a guide issued by JFMIP and the CFO Council and in 

checklists that we have published. And, finally, lessons learned from the 

government’s successful Year 2000 efforts, including the importance of 

providing top management involvement and high-level leadership, can be 

applied to efforts to help improve agencies’ financial management systems 

so that they can produce the reliable, useful, and timely information needed 

by management and other decisionmakers.

In commenting on a draft of this report, OMB expressed concerns 

regarding the seemingly “all or nothing” assessments of FFMIA 

compliance. Under OMB’s current implementing guidance, agencies’ 

9

JFMIP is a cooperative undertaking of OMB, the Department of the Treasury, the Office of 

Personnel Management (OPM), and GAO working with operating agencies to improve 

financial management practices throughout the government. The program was initiated in 

1948 by the Secretary of the Treasury, the Director of the Bureau of the Budget (now OMB), 

and the Comptroller General and was given statutory authorization in the Budget and 

Accounting Procedures Act of 1950. The Civil Service Commission, now OPM, joined JFMIP 

in 1966.
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systems are determined to either have substantially complied or not, 

without distinctions as to progress toward that goal. Also, OMB 

commented that the report was negative and did not give any credit for 

either progress made by agencies or current improvement efforts 

underway. We agree that it is important to measure progress toward 

achieving compliance with FFMIA to demonstrate that agencies’ systems 

are moving steadily toward compliance with FFMIA’s requirements. Our 

work, as well as that performed or directed by agency Inspectors General 

(IG) shows that agencies are making an effort, and we acknowledge that in 

the report. However, attaining the end goal of having reliable data on 

demand for day-to-day decision-making is a distant goal for many agencies. 

We plan to work with OMB as it contemplates various approaches to 

measuring and reporting progress in achieving compliance with FFMIA.

OMB also expressed concerns about the applicability of information 

security requirements to certain systems in assessing compliance with 

FFMIA. OMB’s view is that for purposes of reviewing compliance with 

FFMIA, information security controls should only be considered for 

financial systems under the purview of the agency CFO, and not for mixed 

or enterprise systems, which OMB states must be addressed on an 

agencywide level. However, to the extent that financial and non-financial 

portions of mixed systems cannot be separated for purposes of information 

security controls, the mixed systems in their entirety are subject to FFMIA. 

Further, the applicability of FFMIA is not limited to systems within the 

influence of the agency CFO. Rather, FFMIA refers only to agency systems 

and vests ultimate responsibility in the agency head for determining 

whether agency systems comply with FFMIA requirements. Therefore, 

information security controls for not only financial systems, but also mixed 

systems in their entirety should be included in FFMIA reviews.

Background FFMIA and other financial management reform legislation, most notably 

the CFO Act, have underscored the importance of improving financial 

management across the federal government. The primary purpose of 

FFMIA is to ensure that agency financial management systems routinely 

provide reliable, useful, and timely financial information. With such 

information, government leaders will be better positioned to invest 

resources, reduce costs, oversee programs, and hold agency managers 

accountable for the way they run government programs. Financial 

management systems’ compliance with federal financial management 

systems requirements, applicable accounting standards, and the SGL are 

the building blocks to help achieve these goals.
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Management Reform 

Framework

FFMIA is part of a series of management reform legislation passed by the 

Congress over the past two decades. This series of legislation started with 

the Federal Managers’ Financial Integrity Act of 1982 (Financial Integrity 

Act), which the Congress passed to strengthen internal control and 

accounting systems throughout the federal government, among other 

purposes. However, as we reported in 1989,10 7 years after the Financial 

Integrity Act was passed, while agencies had achieved some success in 

identifying and correcting material internal control and accounting system 

weaknesses, their efforts to implement the Financial Integrity Act had not 

produced the results intended by the Congress. At that time, we also 

reported that the government did not have the internal control systems 

necessary to effectively operate its programs and safeguard its assets and 

that its accounting systems were antiquated and second-rate.

So, in the 1990s, the Congress passed additional management reform 

legislation to improve the general and financial management of the federal 

government. The combination of reforms ushered in by (1) the CFO Act of 

1990, (2) the Government Management and Reform Act of 1994, (3) FFMIA, 

(4) the Government Performance and Results Act of 1993, and (5) the 

Clinger-Cohen Act of 1996, if successfully implemented, provides a basis 

for improving accountability over government operations and routinely 

producing sound cost and operating performance information, thereby 

making it possible to better assess and improve the government’s financial 

condition and operating performance. In addition, in November 1999 we 

updated our Standards for Internal Control in the Federal Government,

11

which is issued pursuant to the Financial Integrity Act to help agency 

managers implement effective internal control, an integral part of 

improving financial management systems.

Financial Management 

Systems Requirements

The financial management systems policies and standards prescribed for 

executive agencies to follow in developing, operating, evaluating, and 

reporting on financial management systems are defined in OMB Circular A127, Financial Management Systems. Circular A-127 references the series of 

publications, entitled Federal Financial Management Systems 

Requirements (FFMSR), issued by JFMIP as the primary source of 

10Financial Integrity Act: Inadequate Controls Result in Ineffective Federal Programs and 

Billions in Losses (GAO/AFMD-90-10, November 28, 1989).

11GAO/AIMD-00-21.3.1, November 1999.
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governmentwide requirements for financial management systems. JFMIP 

systems requirements, among other things, provide a framework for 

establishing integrated financial management systems to support program 

and financial managers. These requirements documents were first issued in 

the early 1990s, and several have been updated since then. Table 1 lists the 

current publications in the FFMSR series and their issue dates.

Table 1: Publications in the Federal Financial Management System Requirements Series

JFMIP is also developing systems requirements where none previously 

existed. JFMIP issued an exposure draft on Property Management System 

Requirements in April 2000. A large number of responses and comments 

were received, and as a result, a second exposure draft was issued in July 

2000. Also, efforts are underway to develop system requirements 

documents for benefit programs and acquisition systems.

FFMSR document Issue date

FFMSR-0 Framework for Federal Financial Management Systems January 1995

FFMSR-7 Inventory System Requirements June 1995

FFMSR-8 Managerial Cost Accounting System Requirements February 1998

JFMIP-SR-99-4 Core Financial System Requirements February 1999

JFMIP-SR-99-5 Human Resources & Payroll Systems Requirements April 1999

JFMIP-SR-99-8 Direct Loan System Requirements June 1999

JFMIP-SR-99-9 Travel System Requirements July 1999

JFMIP-SR-99-14 Seized Property and Forfeited Asset Systems Requirements December 1999

JFMIP-SR-00-01 Guaranteed Loan System Requirements March 2000

JFMIP-SR-00-3 Grant Financial System Requirements June 2000
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Federal Accounting 

Standards

Federal accounting standards, which agency CFOs use in preparing 

financial statements and in developing financial management systems, are 

developed by the Federal Accounting Standards Advisory Board 

(FASAB).12 FASAB develops accounting standards after considering the 

financial and budgetary information needs of the Congress, executive 

agencies, and other users of federal financial information and comments 

from the public. FASAB forwards the standards to the three principals—the 

Comptroller General of the United States (Comptroller General), the 

Secretary of the Treasury, and the Director of OMB—for a 90-day review. If 

there are no objections during the review period, the standards are 

considered final and FASAB publishes them on its Web site and in print.

The American Institute of Certified Public Accountants now recognizes the 

federal accounting standards developed by FASAB as being generally 

accepted accounting principles for the federal government. This 

recognition enhances the acceptability of the standards, which form the 

foundation for preparing consistent and meaningful financial statements 

both for individual agencies and the government as a whole.

Currently, there are 18 statements of federal financial accounting standards 

(SFFAS) and 3 statements of federal financial accounting concepts 

(SFFAC).13 The concepts and standards are the basis for OMB’s guidance to 

agencies on the form and content of their financial statements and the 

government’s consolidated financial statements. Table 2 lists the concepts, 

standards, and interpretations14 along with their respective effective dates.

12In October 1990, the Secretary of the Treasury, the Director of OMB, and the Comptroller 

General established FASAB to recommend a set of generally accepted accounting standards 

for the federal government.

13Accounting standards are authoritative statements of how particular types of transactions 

and other events should be reflected in financial statements. SFFACs explain the objectives 

and ideas upon which FASAB develops the standards.

14Occasionally, FASAB clarifies existing federal accounting standards by providing 

interpretations. An interpretation is a document of narrow scope that provides clarifications 

of original meaning, additional definitions, or other guidance pertaining to an existing 

federal accounting standard.
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Table 2: Statements of Federal Financial Accounting Concepts, Statements of Federal Financial Accounting Standards, and 

Interpretations

a

Effective dates do not apply to Statements of Federal Financial Accounting Concepts and 

Interpretations.

Concepts

SFFAC No. 1 Objectives of Federal Financial Reporting

SFFAC No. 2 Entity and Display

SFFAC No. 3 Management’s Discussion and Analysis

Standards

Effective for

fiscal yeara

SFFAS No. 1 Accounting for Selected Assets and Liabilities 1994

SFFAS No. 2 Accounting for Direct Loans and Loan Guarantees 1994

SFFAS No. 3 Accounting for Inventory and Related Property 1994

SFFAS No. 4 Managerial Cost Accounting Concepts and Standards 1998

SFFAS No. 5 Accounting for Liabilities of the Federal Government 1997

SFFAS No. 6 Accounting for Property, Plant, and Equipment 1998

SFFAS No. 7 Accounting for Revenue and Other Financing Sources 1998

SFFAS No. 8 Supplementary Stewardship Reporting 1998

SFFAS No. 9 Deferral of the Effective Date of Managerial Cost Accounting Standards for the Federal Government in 

SFFAS No. 4

1998

SFFAS No. 10 Accounting for Internal Use Software 2001

SFFAS No. 11 Amendments to Accounting for Property, Plant, and Equipment—Definitional Changes 1999

SFFAS No. 12 Recognition of Contingent Liabilities Arising from Litigation: An Amendment of SFFAS No. 5, 

Accounting for Liabilities of the Federal Government

1998

SFFAS No. 13 Deferral of Paragraph 65-2—Material Revenue-Related Transactions Disclosures 1999

SFFAS No. 14 Amendments to Deferred Maintenance Reporting 1999

SFFAS No. 15 Management’s Discussion and Analysis 2000

SFFAS No. 16 Amendments to Accounting for Property, Plant, and Equipment 2000

SFFAS No. 17 Accounting for Social Insurance 2000

SFFAS No. 18 Amendments to Accounting Standards for Direct Loans and Loan Guarantees in SFFAS No. 2 2001

Interpretations

No. 1 Reporting on Indian Trust Funds

No. 2 Accounting for Treasury Judgment Fund Transactions

No. 3 Measurement Date for Pension and Retirement Health Care Liabilities

No. 4 Accounting for Pension Payments in Excess of Pension Expense

No. 5 Recognition by Recipient Entities of Receivable Nonexchange Revenue
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FASAB’s Accounting and Auditing Policy Committee (AAPC)15 assists in 

resolving issues related to the implementation of accounting standards. 

AAPC’s efforts result in guidance for preparers and auditors of federal 

financial statements in connection with implementation of accounting 

standards and the reporting and auditing requirements contained in OMB’s 

Form and Content Bulletin and Audit Bulletin. To date, AAPC has released 

four technical releases (TR), which are listed in table 3 along with their 

release dates.

Table 3: AAPC Technical Releases

Standard General Ledger The SGL was established by an interagency task force through the direction 

of OMB and mandated for use by OMB and Treasury regulations in 1986. 

The SGL promotes consistency in financial transaction processing and 

reporting by providing a uniform chart of accounts and pro forma 

transactions used to standardize federal agencies’ financial information 

accumulation and processing, enhance financial control, and support 

budget and external reporting, including financial statement preparation. 

The SGL is intended to improve data stewardship throughout the 

government, enabling consistent reporting at all levels within the agencies 

and providing comparable data and financial analysis at the 

governmentwide level.16

15In 1997, FASAB, in conjunction with OMB, Treasury, GAO, the CFO Council, and the 

President’s Council on Integrity and Efficiency, established AAPC to assist the federal 

government in improving financial reporting.

Technical release

AAPC release 

date

TR-1 Audit Legal Letter Guidance March 1, 1998

TR-2 Environmental Liabilities Guidance March 15, 1998

TR-3 Preparing and Auditing Direct Loan and Loan Guarantee 

Subsidies under the Federal Credit Reform Act

July 31, 1999

TR-4 Reporting on Non-Valued Seized and Forfeited Property July 31, 1999

16SGL guidance is published in the Treasury Financial Manual. Treasury’s Financial 

Management Service is responsible for maintaining the SGL and answering agency inquiries.
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Remediation Plans FFMIA requires an agency head to determine, based on a review of the 

auditor’s report on the agency’s financial statements and any other relevant 

information, whether the agency’s financial management systems 

substantially comply with the act. 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. If the agency head disagrees with the 

auditor’s determination that the systems do not substantially comply, the 

Director of OMB is to review the agency head’s determination and report to 

the Congress. If the agency head agrees that the systems do not 

substantially comply, FFMIA requires that the agency head, in consultation 

with the Director of OMB, establish a remediation plan to bring the systems 

into substantial compliance with FFMIA’s requirements. 

According to FFMIA, remediation plans are to include corrective actions, 

intermediate target dates, and resources necessary to bring the financial 

management systems into substantial compliance with FFMIA’s 

requirements within 3 years of the date the agency head’s noncompliance 

determination is made. If, with the concurrence of the Director of OMB, the 

agency head determines that substantial compliance cannot be reached 

within 3 years, the remediation plan must specify the most feasible date by 

which the agency’s systems will achieve compliance and designate an 

official responsible for effecting the necessary corrective actions.

In accordance with OMB guidance contained in Circular A-11, Preparing 

and Submitting Budget Estimates, effective July 12, 1999, agencies are to 

include their remediation plans in their annual budget submissions due to 

OMB in October. The guidance requires that the plans include corrective 

actions, resources needed, and interim target dates to bring the financial 

management systems into substantial compliance within 3 years of the date 

of the agencies’ determination that their systems are not in substantial 

compliance.17

17The most current revision of Circular A-11, effective July 19, 2000, requires that in addition 

to corrective actions, resources, and target dates, agencies also identify responsible officials 

in their remediation plans. The guidance changes the due date for budget submission 

documents due in 2000 to December rather than October because of the presidential 

transition.
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Scope and 

Methodology

We reviewed fiscal year 1999 audit reports for the 24 CFO Act agencies to 

determine (1) which agencies had systems that their auditors found to be 

noncompliant with FFMIA’s requirements, (2) reasons why the systems 

were found to be noncompliant, and (3) whether the audit reports were 

issued by the March 1 statutory deadline. Our review included determining 

where “heroic efforts” were used to meet the deadline. We interviewed 

agency management and auditors at several CFO Act agencies to obtain 

their views on FFMIA implementation, including what factors management 

considered in determining whether their agencies’ systems complied.

We reviewed OMB’s guidance for FFMIA and interviewed OMB officials 

responsible for FFMIA issues. Specifically, we reviewed the guidance for 

preparing remediation plans for fiscal year 1998 contained in OMB Circular 

A-11, Preparing and Submitting Budget Estimates. We reviewed agencies’ 

fiscal year 1998 remediation plans to determine if they contained the 

required elements and if the corrective actions in the plans would resolve 

agencies’ systems problems. Fiscal year 1999 remediation plans are not due 

to OMB, and therefore will not be available, until December 2000. We 

compared the fiscal year 1998 remediation plans to those for fiscal year 

1997 to determine if they had improved. We interviewed OMB officials and 

staff to determine what actions OMB has taken regarding agencies’ 

remediation plans. We also reviewed a draft of the revised guidance in OMB 

Bulletin 98-08, Audit Requirements for Federal Financial Statements.

We reviewed applicable federal accounting standards and systems 

requirements documents. We made inquiries of FASAB and JFMIP staff to 

determine recent developments in their respective efforts to develop 

accounting standards and issue new systems requirements documents.

We conducted our work from February through August 2000 at the 24 CFO 

Act agencies and OMB in Washington, D.C., in accordance with generally 

accepted government auditing standards. We requested comments on a 

draft of this report from the Director of OMB or his designee. The Deputy 

Controller of OMB provided us with written comments. These comments 

are discussed in the “Agency Comments and Our Evaluation” section and 

are reprinted in appendix I.
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Fiscal Year 1999 Audit 

Results Indicate 

Progress But Serious 

Problems Remain

Agencies have a better understanding of their financial management 

weaknesses and are slowly making progress in addressing their problems. 

However, while an increasing number of agencies are issuing their audited 

financial statements on time and receiving unqualified (clean) audit 

opinions, financial management systems of the vast majority of CFO Act 

agencies do not yet comply with FFMIA’s requirements and, therefore, fall 

short of the CFO Act and FFMIA goal to provide reliable, useful, and timely 

information to assist in day-to-day management. This continuing 

widespread noncompliance with FFMIA is indicative of the overall longstanding poor condition of agency financial systems.

Auditors for 21 of the 24 CFO Act agencies reported that for fiscal year 

1999, the agencies’ systems still did not comply substantially with federal 

financial systems requirements, federal accounting standards, or the SGL.18

Auditors for three agencies—the Department of Energy,19 the National 

Aeronautics and Space Administration, and the National Science 

Foundation—reported the agencies’ systems to be in substantial 

compliance. These FFMIA compliance results were similar to those for 

fiscal years 1997 and 1998. 

18Management of 3 of the 21 agencies—the Federal Emergency Management Agency, the 

Social Security Administration, and the Office of Personnel Management (OPM)—disagreed 

with their auditors’ determinations that their agencies’ systems did not comply substantially 

with FFMIA’s requirements. Management of these three agencies acknowledged that the 

weaknesses identified by the auditors exist but did not agree that the weaknesses caused 

“substantial noncompliance.” (In the case of OPM, management determined that the 

systems for the Retirement, Health Benefits Insurance, and Life Insurance programs did 

comply substantially with FFMIA. For the Revolving Fund and Salaries and Expenses, OPM 

management agreed with its auditors that the systems did not comply substantially with 

FFMIA.)

19According to OMB guidance in OMB Bulletin 98-08, material weaknesses in internal 

controls that affect an agency’s ability to prepare auditable financial statements and related 

disclosures are an indication of noncompliance with FFMIA. In its fiscal year 1999 Report 

on Internal Controls, the Department of Energy’s IG reported a material weakness related to 

the Western Area Power Administration’s new financial management system. The report 

states, “While the Department’s systems as a whole substantially comply with FFMIA, the 

new financial management system implemented by Western was not in compliance with the 

FFMIA requirements as of September 30, 1999. . . . Thus, Western was unable to adequately 

track and report on budget execution and meet external reporting requirements, including 

preparation of financial statements.”
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Fifteen of the 24 CFO Act agencies received unqualified audit opinions on 

their financial statements for fiscal year 1999, up from 12 in fiscal year 1998 

and 11 in fiscal year 1997. Yet, FFMIA noncompliance has been fairly 

consistent since fiscal year 1997 when the systems of 20 of the 24 CFO Act 

agencies were reported to be noncompliant.20 Auditors for 12 of the 15 

agencies that received unqualified opinions reported that the agencies’ 

financial systems did not comply substantially with FFMIA’s requirements 

in fiscal year 1999. In many cases, these agencies spent considerable 

resources and often performed “heroic efforts” to obtain a clean opinion 

because their financial statements could not be produced from their 

financial systems. 

Not only has the number of clean opinions increased, the number of 

agencies issuing their audited financial statements on time has also 

increased. To emphasize the importance of timely preparation and audit of 

agency financial statements, officials from OMB, GAO, and the Department 

of the Treasury held meetings with cognizant agency officials. For fiscal 

year 1999, 5 of the 24 CFO Act agencies issued their audited statements 

after the statutory due date of March 1, compared to fiscal year 1997, when 

11 agencies were late issuing their audited financial statements. However, 

as was the case in obtaining clean opinions, many agencies relied on 

“heroic efforts” just to meet the statutory due date. Having to perform such 

efforts indicates the need for continued OMB attention.

Table 4 summarizes the auditors’ FFMIA determinations and financial 

statement opinions for fiscal year 1999 and highlights the 12 agencies that 

received clean audit opinions despite their systems problems.

20In fiscal year 1998, the systems of 21 of the 24 CFO Act agencies were reported to be 

noncompliant.
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Table 4: Auditors’ FFMIA Determinations and Financial Statement Opinions for Fiscal Year 1999

Auditors’ 

determination of 

substantial 

compliance

Areas of reported substantial 

noncompliance Audit opinion

Agency Yes No

Systems 

requirements

Accounting 

standards SGL Unqualified Qualified Disclaimer

Department of 

Agriculture √ √ √ √ √

Department of 

Commerce √ √ √ √

Department of 

Defense √ √ √ √ √

Department of 

Education √ √ √ a

Department of Energy √ √

Department of Health 

and Human Services √ √ √

Department of 

Housing and Urban 

Development

√ √ √ √ √

Department of the 

Interior √ √ √ √

Department of Justice √ √ √ √ √

Department of Labor √ √ √ √ √

Department of State √ √ √

Department of 

Transportation √ √ √ √ √

Department of the 

Treasury √ √ √ √ √

Department of 

Veterans Affairs √ √ √ √ √

Agency for 

International 

Development

√ √ √ √ √

Environmental 

Protection Agency √ √ √ √ √

Federal Emergency 

Management Agency √ √ √

General Services 

Administration √ √ √
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Financial statement audit results are key indicators of the quality of agency 

financial data at year-end and provide an annual public scorecard on 

accountability. Agencies are to be commended for receiving unqualified 

audit opinions. At the same time, a clean audit opinion is not an end in 

itself. A clean audit opinion indicates to financial statement users only that 

the information is fairly presented as of the date of the financial 

statements—the last day of the fiscal year. However, financial statement 

National Aeronautics 

and Space 

Administration

√ √

National Science 

Foundation √ √

Nuclear Regulatory 

Commission √ √ √ √ √

Office of Personnel 

Management √ √ √ √ b

Small Business 

Administration √ √ √ √ √

Social Security 

Administration √ √ √

Total 3 21 21 15 14 15 4 5

(Continued From Previous Page)

Auditors’ 

determination of 

substantial 

compliance

Areas of reported substantial 

noncompliance Audit opinion

Agency Yes No

Systems 

requirements

Accounting 

standards SGL Unqualified Qualified Disclaimer

= Auditors gave the agency’s financial statements an unqualified audit opinion, but reported that the

agency’s systems did not comply substantially with FFMIA’s requirements.

Note: Management of 21 of the 24 agencies agreed with their auditors’ FFMIA compliance determinations.

Management of the remaining three agencies—the Federal Management Emergency Agency, the Social Security

Administration, and the Office of Personnel Management—did not agree that their systems were not in substantial

compliance. See footnote 18.

a

Education received a disclaimer of opinion on its Statement of Financing and qualified opinions on its other financial

statements.

b

The Office of Personnel Management (OPM) does not prepare agencywide financial statements. For fiscal year

1999, OPM received disclaimers of opinion on its financial statements for Revolving Fund and Salaries and Expenses

and unqualified opinions on the financial statements for the Retirement, Health Benefits Insurance, and Life

Insurance Programs.

Source: GAO analysis of agency audit reports for fiscal year 1999.
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users generally do not get this information until 5 months after the close of 

the fiscal year—around March 1, the statutory deadline—which is when 

most agencies issue their financial statements. As illustrated below, this 

time lag often results from the numerous adjustments and other “heroic 

efforts” needed to prepare these statements. Although a clean opinion 

indicates that year-end financial information is fairly presented, it provides 

no assurance about the effectiveness and efficiency of financial systems 

used to prepare the statements or whether use of the same or other 

information generated by the financial systems for management use 

throughout the year would be appropriate. The results shown in table 4 

indicate that although auditors reported that the financial statements of 15 

of the 24 CFO Act agencies were fairly presented and reliable at the end of 

the fiscal year, as we discuss later in this report, the financial systems of 21 

of the 24 agencies have weaknesses, some of which are so serious that they 

are not able to routinely provide reliable, useful, and timely information on 

an ongoing basis.

In order to receive an unqualified opinion, many agencies whose financial 

management systems did not comply with FFMIA had to rely on “heroic 

efforts” consisting of time-consuming, ad hoc programming and analysis of 

data produced by inadequate systems that are not integrated or routinely 

reconciled and often require significant audit adjustments. For example, 

the Department of Transportation (DOT) received its first unqualified 

opinion on its fiscal year 1999 departmentwide financial statements. 

However, like several other agencies, despite the clean opinion, DOT’s IG 

reported that DOT’s systems did not comply substantially with FFMIA.21

DOT’s existing core accounting system—designed to be the primary system 

for producing financial information and financial statements—was not the 

primary source of information used to prepare the financial statements. 

Because the core system did not provide the necessary data, DOT made 

about 800 adjusting entries totaling $36 billion. Also, according to the IG, 

the Federal Aviation Administration’s property systems were not designed 

as an integrated system to accurately account for property costs. 22

Therefore, DOT hired additional contractors, detailed employees, and used 

extensive overtime and compensatory time to provide sufficient evidence 

to support the amounts of property, plant, and equipment shown on its 

21Office of Inspector General Audit Report, Fiscal Year 1999 Consolidated Financial 

Statements, Department of Transportation, Report No. FE-2000-062, March 8, 2000.

22Fiscal Year 1999 Financial Statements, Federal Aviation Administration, Report No. FE2000-060, February 29, 2000.
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financial statements. The IG reported that these manual and labor-intensive 

methods are expensive; prone to errors, mistakes, and inaccuracies; and 

cannot be sustained.

As we discuss below, one of the main problems agencies face is the lack of 

an integrated financial management system. Having an effective, integrated 

financial management system that can produce financial statements in a 

timely manner prevents the need for time-consuming and costly 

procedures. In our Executive Guide: Creating Value Through World-class 

Financial Management, we identified the success factors, practices, and 

outcomes associated with world-class financial management efforts. We 

found that many leading finance organizations have a goal to reduce the 

time spent on routine accounting activities, such as financial statement 

preparation, so that financial management staff can spend more time on 

activities such as business performance analysis or cost analysis.

Reasons for Noncompliance Based on our review of fiscal year 1999 audit reports for the 21 agencies 

whose financial management systems were reported to be noncompliant, 

we identified five primary reasons cited by the auditors:

• nonintegrated financial management systems,

• inadequate reconciliation procedures,

• noncompliance with the SGL,

• lack of adherence to federal accounting standards, and

• weak security over information systems.

Table 5 shows the 21 agencies with noncompliant systems and the 

problems relevant to FFMIA that were reported by their auditors.23

Auditors reported these problems among the weaknesses identified during 

the audits; however, the auditors may not have reported the problems as 

specific reasons for why they concluded that the agencies’ systems did not 

comply with FFMIA. Further, the weaknesses reported by auditors ranged 

from serious, pervasive systems problems to less serious problems that 

may affect one aspect of an agency’s accounting operation. We included all 

weaknesses relevant to FFMIA identified by the auditors because such 

23Based on further review of agency audit reports, we have updated information in this table, 

which first appeared in our June testimony on FFMIA, Financial Management: Agencies 

Face Many Challenges in Meeting the Goals of the Federal Financial Management 

Improvement Act (GAO/T-AIMD-00-178, June 6, 2000).
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problems must be resolved in order for the agencies’ systems to generate 

the reliable, useful, and timely information needed by decisionmakers.

Table 5: Problems Reported by Auditors in Fiscal Year 1999

Source: GAO analysis of agency audit reports for fiscal year 1999. We did not independently verify or 

test the data in the agency audit reports.

Agency

Nonintegrated 

financial 

management 

systems

Inadequate 

reconciliation 

procedures

Noncompliance with 

the SGL

Lack of 

adherence to 

federal 

accounting 

standards

Weak security 

over information 

systems

Department of Agriculture √ √ √ √ √

Department of Commerce √ √ √ √

Department of Defense √ √ √ √ √

Department of Education √ √ √ √

Department of Health and 

Human Services

√ √ √

Department of Housing and 

Urban Development

√ √ √ √ √

Department of the Interior √ √

Department of Justice √ √ √ √ √

Department of Labor √ √ √ √ √

Department of State √ √ √

Department of Transportation √ √ √ √

Department of the Treasury √ √ √ √ √

Department of Veterans Affairs √ √ √ √ √

Agency for International 

Development

√ √ √ √ √

Environmental Protection 

Agency

√ √ √ √

Federal Emergency 

Management Agency

√ √ √

General Services 

Administration

√

Nuclear Regulatory 

Commission

√ √ √

Office of Personnel 

Management

√ √ √ √

Small Business Administration √ √ √ √

Social Security Administration √

Totals 15 15 14 15 21
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To understand how these weaknesses affect agencies’ financial 

management efforts and to bring about any lasting improvements, it is 

important to understand what these weaknesses mean and how they affect 

the government’s operations. The following sections describe the five types 

of weaknesses and provide examples identified by the agencies’ auditors. 

Nonintegrated Financial 

Management Systems

One of the federal financial systems requirements is that agencies’ financial 

management systems be integrated.24 According to the CFO Act, agencies 

are to develop and maintain an integrated accounting and financial 

management system that complies with federal systems requirements and 

provides for (1) complete, reliable, consistent, and timely information that 

responds to the financial information needs of the agency and facilitates 

the systematic measurement of performance, (2) the development and 

reporting of cost information, and (3) the integration of accounting, 

budgeting, and program information. In this regard, OMB Circular A-127, 

Financial Management Systems, requires agencies to establish and 

maintain an integrated financial management system that conforms with 

JFMIP’s functional requirements.

When agencies do not have an integrated financial management system—

which includes a budget system and program systems that maintain 

financial information, such as logistics, personnel, and acquisition 

systems—they are often forced to rely on ad hoc programming, analysis, or 

actions—such as taking physical inventories solely for the purpose of 

determining what assets they have on hand rather than verifying amounts 

recorded in the financial system—to satisfy financial reporting and analysis 

responsibilities. In these situations, agencies must expend major effort and 

resources, and some agencies rely heavily on external consultants to 

develop information that their systems should be able to provide on a daily 

or recurring basis. In addition, opportunities for errors are significantly 

increased when agencies’ systems are not integrated.

Modern, integrated financial systems rely on transaction-based entries to 

update all relevant accounts, be they for budgetary control, proprietary 

accounting objectives, or program management. In these modern, 

24Federal financial system requirements define an integrated financial system as one that 

coordinates a number of previously unconnected functions to improve overall efficiency 

and control. Characteristics of such a system include (1) standard data classifications for 

recording financial events, (2) common processes for processing similar transactions, 

(3) consistent internal controls over data entry, transaction processing, and reporting, and 

(4) a system design that eliminates unnecessary duplication of transaction entry.
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integrated systems, financial data are carried in a common format, and the 

effects of financial transactions in one application are accurately 

transmitted to other affected applications. Accordingly, aside from the 

timeliness in recording transactions, the use of integrated systems largely 

negates the risk of out-of-balance situations and data-entry errors. Thus, 

agencies can have at their disposal information that can quickly provide 

year-to-date balances, mitigate the need for extensive reconciliation 

procedures, and more important, can be used for analysis throughout the 

year.

A continuing, serious problem is that agencies lack modern, integrated 

financial management systems. As shown in table 5, auditors for 15 of the 

21 agencies with noncompliant systems reported this as a problem. For 

example, as we testified in February 2000,25 the Internal Revenue Service 

(IRS) had to focus substantial efforts on developing compensating 

processes to work around its serious systems and internal control 

weaknesses to derive year-end balances for its financial statements.26

Because IRS’ aging financial management systems have not been 

redesigned to meet current systems requirements and financial reporting 

standards, IRS’ approach to preparing financial statements relied heavily 

on costly, time-consuming processes; statistical projections; and external 

consultants to derive year-end balances. For instance, IRS continues to 

have pervasive problems in managing and reporting unpaid assessments.27

IRS does not have a subsidiary ledger that tracks and accumulates unpaid 

assessments and their status on an ongoing basis. The absence of the 

subsidiary ledger adversely affects IRS’ ability to effectively manage and 

accurately report these assessments. Typically, an entity’s accounts 

receivable balances would be supported by detailed records, listings, or a 

subsidiary ledger of individual amounts, which are all part of an integrated 

financial management system. To compensate for the lack of an unpaid 

assessment subsidiary ledger, IRS uses ad hoc programs that extract data 

25Internal Revenue Service: Results of Fiscal Year 1999 Financial Statement Audit (GAO/

T-AIMD-00-104, February 29, 2000).

26The Department of the Treasury is 1 of the 21 agencies whose systems were reported as 

noncompliant. The noncompliance was due, among other things, to IRS’ systems problems.

27Unpaid assessments consist of amounts for which (1) IRS can support the existence of a 

receivable through taxpayer agreement or a favorable court ruling (federal taxes 

receivable), (2) neither the taxpayer nor the court has affirmed that the amounts are owed 

(compliance assessments), and (3) IRS does not expect further collections due to factors 

such as the taxpayer’s death, bankruptcy, or insolvency (write-offs).
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from the tax master files—its database of taxpayer information. However, 

as in past years, the results still required significant adjustments totaling 

tens of billions of dollars before taxes receivable could be reliably reported 

on the balance sheet. IRS’ top management recognizes this and has 

demonstrated a strong commitment to developing an integrated system as 

part of tax systems modernization.

Inadequate Reconciliation 

Procedures

A reconciliation process, even if performed manually, is a valuable part of a 

sound financial management system. In fact, the less integrated the 

financial management system, the greater the need for adequate 

reconciliations because data for the same transaction may be separately 

entered in multiple systems. Reconciliation of records from the multiple 

systems would ensure that transaction data were entered correctly in each 

one. Reconciliation is also an important control for establishing agreement 

between two sets of independently maintained but related records because 

it helps to ensure the integrity of the underlying accounting data supporting 

the financial statements. For example, in a private company, the ledger 

account for Cash in Bank is reconciled with the bank statement received 

from the bank, and the home office record of shipments to a branch office 

is reconciled with the record of receipts maintained by the branch. Our 

recently updated Standards for Internal Control in the Federal Government

highlight reconciliation as a key control activity.

As shown in table 5, auditors for 15 of the 21 agencies with noncompliant 

systems reported that the agencies had reconciliation problems, including 

difficulty reconciling their Fund Balance with Treasury accounts28 with the 

Department of the Treasury’s records. Treasury policy requires agencies to 

reconcile their accounting records with Treasury records monthly, which is 

comparable to individuals reconciling their checkbooks to their monthly 

bank statements. However, such reconciliations are not being routinely 

performed.

28Agencies record their budget spending authorizations in their Fund Balance with Treasury 

accounts. Agencies increase or decrease these accounts as they collect or disburse funds.
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For example, the Department of Education’s auditors reported that 

Education did not perform proper or timely reconciliations of its financial 

accounting records throughout fiscal year 1999.29 And, at fiscal year-end, 

the balance in Education’s Fund Balance with Treasury account varied 

considerably from the related balance reported by Treasury. In order to 

make the account balances agree, Education made an unsupported 

adjustment of a net amount of about $244 million to its Fund Balance with 

Treasury account. This means that Education simply changed its records to 

agree with Treasury balances without adequately researching the causes 

and reconciling the differences. Because Education had not been 

performing periodic reconciliations and discerning reasons for differences 

on an ongoing basis, it could not determine which records, if any, were 

correct and, accordingly, relied on Treasury’s records, not its own.

Noncompliance With the SGL Implementing the SGL at the transaction level is one of the major 

requirements of FFMIA. However, as shown in table 5, auditors for 14 of 

the 21 agencies with noncompliant systems reported that the agencies’ 

systems did not comply with SGL requirements. By not implementing the 

SGL, agencies are challenged to provide consistent financial information 

across their component entities and functions. The effect of such 

differences is further compounded at the governmentwide level and 

contributed to our disclaimer of opinion on the U.S. government’s 

consolidated financial reports for fiscal years 1997, 1998, and 1999 because 

the government could not ensure that the information in its financial 

statements was properly and consistently compiled.30

29The U.S. Department of Education, Audited Financial Statements, Year Ended 

September 30, 1999, Report of Independent Auditors, Ernst & Young LLP, February 2, 2000. 

Also see Financial Management: Financial Management Weaknesses at the Department of 

Education (GAO/T-AIMD-00-50, December 6, 1999), Financial Management: Education 

Faces Challenges in Achieving Financial Management Reform (GAO/T-AIMD-00-106, 

March 1, 2000), and Financial Management: Education’s Financial Management Problems 

Persist (GAO/T-AIMD-00-180, May 24, 2000).

30Financial Audit: 1997 Consolidated Financial Statements of the United States Government

(GAO/AIMD-98-127, March 31, 1998), Financial Audit: 1998 Financial Report of the United 

States Government (GAO/AIMD-99-130, March 31, 1999), and Financial Audit: 1999 Financial 

Report of the United States Government (GAO/AIMD-00-131, March 31, 2000).
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In March, a Treasury official testified that the federal government needs to 

increase the use of the SGL in agency accounting systems to improve the 

reliability and accuracy of financial information.31 The official stated

“Our ability to prepare the consolidated financial report using SGL data so that it is 

consistent with data in agency statements is hampered by the fact that a large number of 

agencies do not properly use the SGL. In many instances, agencies cannot adequately 

produce and send the SGL data to Treasury because their systems do not record accounting 

events using the SGL at the transaction level as mandated by the FFMIA. This results in 

additional workload and processes to ensure that amounts are recorded in the proper 

accounts. Additionally, this frustrates attempts to maximize efficiency through the creation 

of automated analytical tools.”

For example, the Agency for International Development’s (AID) IG 

reported that AID did not record accounts receivable in accordance with 

the SGL at the transaction level.32 AID relied on data calls33 to obtain the 

total amount of outstanding accounts receivable because it did not have 

integrated financial management systems. These data calls were posted to 

the general ledger at the summary level as opposed to the transaction level 

as required. According to the IG, by using data calls to determine 

outstanding accounts receivable, AID is at risk that the information 

obtained is not accurate or complete.

Lack of Adherence to Federal 

Accounting Standards

One of FFMIA’s requirements is that agencies’ financial management 

systems comply with applicable federal accounting standards. As shown in 

table 5, auditors for 15 of the 21 agencies with noncompliant systems 

reported that the agencies had problems complying with one or more of 

these standards. Some agencies have experienced difficulty implementing 

the standards because their financial management systems are not capable 

of producing the financial data needed. FASAB continues to deliberate on 

new and emerging accounting issues that could result in its issuing 

additional standards; therefore, agencies’ systems also must be able to 

accommodate any standards that may be issued in the future.

31Are the Financial Records of the Federal Government Reliable? Testimony of Donald V. 

Hammond, Fiscal Assistant Secretary, Department of the Treasury, March 31, 2000.

32Reports on USAID’s Consolidated Financial Statements, Internal Controls, and 

Compliance for Fiscal Year 1999 (Report No. 0-000-00-006-F, February 18, 2000). 

33Data calls is a term used to describe the process of requesting that various offices provide 

outstanding balances as of year-end. The resulting reports are prepared from data contained 

outside the formal accounting system.
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For example, the processes and procedures used by the Department of 

Agriculture’s (USDA) lending agencies to estimate and reestimate loan 

subsidy costs do not comply with SFFAS No. 2, Accounting for Direct 

Loans and Loan Guarantees. SFFAS No. 2, which generally mirrors the 

requirements of the Federal Credit Reform Act of 1990, contains guidance 

for agencies to estimate the cost of direct and guaranteed loan programs 

when preparing their annual budgets. The data used for these budgetary 

estimates are generally reestimated after the fiscal year-end to reflect any 

changes in actual loan performance since the budget was prepared. SFFAS 

No. 2 also contains guidance for recording the reestimated cost of direct 

loans and the reestimated liability for loan guarantees in the agency’s 

financial statements. Further, SFFAS No. 2 states that agencies should use 

historical experience as a primary factor upon which to develop estimates 

of future loan performance.

We testified in March that USDA was unable to develop reasonable 

estimates of the costs of its loan programs because its financial systems 

were not able to capture the data needed to make these estimates.34 Also, 

USDA lacked historical information on borrower behavior, such as how 

many borrowers will pay early, pay late, or default on their loans and at 

what point in time. As a result, the Congress and other decisionmakers do 

not know whether they can rely on the agency-reported costs of USDA’s 

loan programs included in the agency’s budget request and in its annual 

financial statements—estimated to be in excess of $27.3 billion as of 

September 30, 1999—for programmatic and budgetary decision-making. 

Cost estimates based on unreliable data can affect the availability of credit 

programs to potential borrowers because changes in these estimates can 

affect the number and amount of loans and guarantees that can be made.

34Financial Management: USDA Faces Major Financial Management Challenges (GAO/

T-AIMD-00-115, March 21, 2000).
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Weak Security Over Information 

Systems

Information security weaknesses are one of the primary causes of systems’ 

noncompliance with FFMIA and a huge concern for federal agencies and 

the general public. Even if agencies’ systems were integrated, complied 

with the SGL, and stringently adhered to federal accounting standards, 

without strong information security controls, there is still the risk that the 

systems would not be able to provide reliable, useful, and timely data. As 

we testified last year and earlier this year, hacker attacks have shown just 

how quickly computer viruses—such as Melissa and ILOVEYOU—can 

spread and just how vulnerable federal information systems are to such 

computer attacks.35 These hacker attacks have clearly highlighted the 

urgent and serious need for stronger agency and governmentwide 

protection over agency data. 

As shown in table 5, auditors for all 21 agencies with noncompliant systems 

reported information security weaknesses as a problem in fiscal year 1999. 

Further, our analyses as well as those of agency IGs show that virtually all 

of the largest federal agencies have significant computer security 

weaknesses.36 These weaknesses, which we designated as a 

governmentwide high-risk area in 1997 and 1999,37 are placing enormous 

amounts of federal assets at risk of inadvertent or deliberate misuse, 

financial information at risk of unauthorized modification or destruction, 

sensitive information at risk of inappropriate disclosure, and critical 

operations at risk of disruption. Our recent update to the federal 

government’s internal control standards highlights the need for adequate 

control over automated information systems to ensure protection from 

inappropriate access and unauthorized use by hackers and other 

trespassers or inappropriate use by agency personnel.

The most serious reported information security problem is inadequately 

restricted access to agency data, including sensitive data such as taxpayer 

records, personal medical information, and law enforcement data. Other 

35Information Security: The Melissa Computer Virus Demonstrates Urgent Need for Stronger 

Protection Over Systems and Sensitive Data (GAO/T-AIMD-99-146, April 15, 1999) and 

Information Security: “ILOVEYOU” Computer Virus Emphasizes Critical Need for Agency 

and Governmentwide Improvements (GAO/T-AIMD-00-171, May 10, 2000).

36Critical Infrastructure Protection: Comments on the National Plan for Information Systems 

Protection (GAO/T-AIMD-00-72, February 1, 2000) and Federal Information Security: 

Actions Needed to Address Widespread Weaknesses (GAO/T-AIMD-00-135, March 29, 2000).

37High-Risk Series: An Overview (GAO/HR-97-1, February 1997) and High-Risk Series: An 

Update (GAO/HR-99-1, January 1999).
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types of information security weaknesses include inadequacies in 

segregating duties to help ensure that people do not conduct unauthorized 

actions without detection, preventing unauthorized software from being 

implemented, and mitigating and recovering from unplanned interruptions 

in computer service. Unresolved information security weaknesses could 

adversely affect the ability of agencies to produce accurate data for 

decision-making and financial reporting because such weaknesses could 

compromise the reliability and availability of data that are recorded in or 

transmitted by an agency’s financial management systems.

For example, the Department of Health and Human Services’ (HHS) IG 

cited weaknesses in the entitywide security structure at the Health Care 

Financing Administration (HCFA), which administers the Medicare 

program.38 HCFA relies on extensive computer operations at both its 

central office and the Medicare contractors to administer the Medicare 

program and to process and account for Medicare expenditures, which 

totaled more than $200 billion in fiscal year 1999. Controls over these 

operations are essential to ensure the integrity, confidentiality, and 

reliability of critical data while reducing the risk of errors, fraud, and other 

illegal acts. These control weaknesses do not effectively prevent 

unauthorized access to and disclosure of sensitive Medicare information.

In recognition of these serious security weaknesses, we have issued guides 

to help agencies improve security over their information systems. As 

mentioned previously, auditors for the 21 agencies with noncompliant 

systems reported weaknesses in information systems security as a cause of 

FFMIA noncompliance. We have identified best practices for improving 

information security management, which we published in two guides:

• Information Security Management: Learning From Leading 

Organizations (GAO/AIMD-98-68, May 1998) and

• Information Security Risk Assessment: Practices of Leading 

Organizations (GAO/AIMD-00-33, November 1999).

38Report on the Financial Statement Audit of the Department of Health and Human Services 

for Fiscal Year 1999 (Report No. A-17-99-00002, February 2000).
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Our guides are consistent with guidance on information security program 

management provided to agencies by OMB and the National Institute of 

Standards and Technology (NIST).39 In addition, the May 1998 guide has 

been endorsed by the federal Chief Information Officers Council as a useful 

resource for agency managers.

All of these financial systems problems date back many years and agencies 

recognize the extent and severity of these financial management 

deficiencies. The serious and pervasive nature of these issues emphasizes 

the importance of developing and implementing a strategy to overcome 

these problems. As we discuss in the next section, agencies have prepared 

remediation plans to address their problems, but these plans need to be 

more detailed to guide agency management and staff as they resolve their 

agencies’ financial management problems.

Remediation Plans 

Continue to Lack 

Important Details

As required by FFMIA, agencies prepared remediation plans describing the 

corrective actions they plan to take to resolve their problems and bring 

their systems into substantial compliance with FFMIA’s requirements. For 

our report on FFMIA compliance last year,40 we reviewed remediation 

plans agencies prepared to address problems identified in the fiscal year 

1997 financial statement audits. We concluded that the majority of the 

plans lacked sufficient detail to be adequate tools for agency management 

and staff to use in resolving financial management problems. For this 

report, we reviewed agencies’ fiscal year 1998 remediation plans41 and 

determined that while overall the plans improved slightly over those for 

fiscal year 1997, many plans still lacked detailed steps, target dates, and 

descriptions of the resources needed for executing the corrective actions. 

Further, some of the corrective actions included in the remediation plans 

we reviewed did not fully address the problems they are intended to 

39OMB guidance is contained in its Circular A-130, Appendix III, Security of Federal 

Automated Information Resources, updated February 1996. NIST has issued numerous 

Federal Information Processing Standards as well as a comprehensive description of basic 

concepts and techniques entitled An Introduction to Computer Security: The NIST 

Handbook, Special Publication 800-12, October 1995, and Generally Accepted Principles and 

Practices for Securing Information Technology Systems, published in September 1996.

40Financial Management: Federal Financial Management Improvement Act Results for Fiscal 

Year 1998 (GAO/AIMD-00-3, October 1, 1999).

41Remediation plans addressing issues identified in the fiscal year 1999 financial statement 

audits were not due to OMB until December 2000.
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correct. As we reported last year, remediation plans need to be sufficiently 

detailed to provide a “road map” for agency management and staff to 

resolve financial management problems. The severity of problems facing 

agencies as they attempt to replace or overhaul old and outdated financial 

systems and resolve serious information security weaknesses, among other 

things, highlights the need for detailed remediation plans.

Of the 21 agencies whose systems were reported to be noncompliant with 

FFMIA in fiscal year 1998, 19 prepared remediation plans.42 Two agencies—

the Social Security Administration (SSA) and the Federal Emergency 

Management Agency (FEMA)—did not submit remediation plans for fiscal 

year 1998 to OMB because agency management determined that their 

systems were in substantial compliance with FFMIA. While SSA and FEMA 

management acknowledged that the weaknesses identified by the auditors 

exist, they did not agree with the auditors that the weaknesses resulted in 

lack of “substantial” compliance. SSA and FEMA have provided comments, 

including corrective actions, in response to the auditors’ recommendations.

FFMIA provides that if the compliance determination of the agency head 

differs from the auditors’ findings, the Director of OMB is to review the 

determinations and provide a report on the findings to the appropriate 

committees of the Congress. Based on discussions with OMB officials, 

OMB is not reviewing and has not reviewed such determinations in order to 

report to the Congress. According to OMB, if there is a disagreement 

between agency heads and auditors, agency heads can contact OMB, and 

OMB will work with them on the issue. Further, although FFMIA does not 

require a remediation plan if an agency head determines the agency’s 

systems comply substantially, agencies are directed to address systems 

weaknesses in their financial management improvement plans in 

accordance with OMB Circular A-11.

We reviewed the 19 available remediation plans to determine whether 

(1) they included all the instances of noncompliance identified in the fiscal 

year 1998 financial statement audit reports, (2) the planned corrective 

actions were accompanied by detailed steps, (3) the corrective actions, if 

successfully implemented, would resolve the problems, (4) they included 

42The Department of the Treasury did not prepare a departmentwide remediation plan. 

Rather, the bureaus and offices of the department, including the IRS, that had noncompliant 

systems prepared their own separate plans. For purposes of this report, we considered the 

individual plans together as the overall Treasury plan.
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information about resources needed, and (5) they provided target dates for 

completing the corrective actions. Figure 1 shows the results of our 

analysis.

Figure 1: Results of Review of Fiscal Year 1998 Remediation Plans

As shown in figure 1, 13 agencies’ remediation plans included corrective 

actions for all the reported instances of noncompliance identified during 

the fiscal year 1998 financial statement audits, and 6 agencies’ remediation 

plans did not. IRS is an example of an agency that did not include 

corrective actions for all reported instances of noncompliance. During our 

audit of IRS’ fiscal year 1999 financial statements, we reviewed its fiscal 

year 1998 remediation plan dated December 1999.43 We reported that 

13

5

9

6

14

6

14

6

13

5

4

0

2

4

6

8

10

12

14

16

Are the corrective actions for

all instances of

noncompliance included?

Are corrective actions

detailed?

Will corrective actions

resolve the problems?

Are resources included? Are time frames included?

Yes No Uncertain

Number of plans

43Financial Audit: IRS’ Fiscal Year 1999 Financial Statements (GAO/AIMD-00-76, 

February 29, 2000).
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although we identified noncompliance with the SGL and the inability to 

report cost accounting information as two reasons why IRS’ systems did 

not substantially comply with FFMIA in fiscal year 1998, IRS’ remediation 

plan did not include corrective actions to address these problems. 

However, in a June 2000 update to its remediation plan, IRS included 

actions to address the SGL and cost accounting issues.

Another problem we found with some remediation plans is that the 

corrective actions were not always detailed. As shown in figure 1, 

corrective actions in 14 of the 19 remediation plans were broadly stated 

and did not include detailed steps describing how actions are to be 

accomplished. An example of a plan with detailed corrective actions is 

HHS’ remediation plan. In its plan, HHS has proposed eight corrective 

actions for improving its financial reporting weaknesses, including

• “Implement additional software to fully interface with [operating 

divisions’] systems by providing an electronic interface,” and 

• “Perform payroll reconciliations three times a year.”

In contrast, one of the corrective actions in DOT’s remediation plan is to 

implement an integrated financial management system that substantially 

complies with federal financial management systems requirements. Based 

on our review of DOT’s remediation plan, we found no detailed steps for 

guiding this system’s implementation. As we discuss later, when an 

agency’s corrective actions involve implementing or replacing financial 

management systems, it is important to have a detailed plan that includes 

adopting sound information technology investment and control processes.

While there is a substantial amount of professional judgment associated 

with assessing the adequacy of these plans, we determined that planned 

corrective actions would likely not always resolve problems identified by 

agencies’ auditors. As shown in figure 1, we determined that the corrective 

actions in the remediation plans of nine agencies, if successfully 

implemented, would probably resolve the problems. It is uncertain whether 

the corrective actions in the plans of four agencies would resolve their 

problems, and for six of the agencies, we determined that the corrective 

actions described in the agencies’ remediation plans probably would not 

resolve the problems. For example, we testified in May44 that the 

44Department of Defense: Progress in Financial Management (GAO/T-AIMD/NSIAD-00-163, 

May 9, 2000).
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Department of Defense’s (DOD) fiscal year 1998 remediation plan, while an 

improvement over the previous plan, did not address, among other things, 

how the planned and ongoing improvement initiatives will result in the 

target financial management environment, including how the feeder 

systems’ data integrity will be improved. Until DOD’s remediation plan 

addresses this and other key elements there can be no assurance that the 

corrective actions taken will fully resolve the underlying problems. 

Although OMB guidance and FFMIA state that remediation plans are to 

include intermediate target dates and resources necessary to achieve 

substantial compliance, several of the remediation plans were lacking 

resource information and a few of the plans were lacking target dates. As 

shown in figure 1, 13 of the 19 remediation plans we reviewed did not 

include resources needed. In the six plans that did include resources 

needed, the information was not always included for every corrective 

action. Five of the 19 plans did not include target dates; however, as was 

the case with resource information, when target dates were included, they 

were not always included for individual corrective actions. Resource 

information is important for agencies and OMB to determine whether 

corrective actions can realistically be undertaken. Setting specific 

intermediate target dates will help keep agencies on track as they 

implement corrective actions.

Systems Replacement 

Projects Emphasize a Need 

for Detailed Plans

The importance of having a good remediation plan becomes more evident 

when corrective actions in remediation plans involve information 

technology (IT) investments, such as implementing or replacing financial 

management systems or software. We have reported that in the past, 

agencies have struggled to develop and implement new systems on time 

and within budget and that billions of dollars have been wasted on systems 

development projects.45

45Major Management Challenges and Program Risks: A Governmentwide Perspective

(GAO/OCG-99-1, January 1999).
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Planning for and executing systems development projects present major 

challenges for many agencies. For example, the Department of Education 

implemented a new accounting system that was intended to be operational 

for fiscal year 1998. In a December 1999 testimony,46 we reported that 

pervasive weaknesses in the design and operation of Education’s financial 

management systems, among other things, prevented Education from 

reliably reporting on the results of its operations in fiscal year 1998. 

Weaknesses in the new accounting system included the inability to perform 

an automated year-end closing process and directly produce consolidated 

financial statements as would normally be expected from such systems. 

The systems limitations contributed to the delay in Education submitting 

its fiscal year 1998 financial statements to the auditors and to Education’s 

failure to meet the statutory due date for issuing its audited financial 

statements for fiscal year 1998. Because of these problems, Education’s 

auditors recommended, among other things, that Education define and 

document the information system requirements needed to manage its 

operations efficiently.47

46Financial Management: Financial Management Weaknesses at the Department of 

Education (GAO/T-AIMD-00-50, December 6, 1999).

47Department of Education, Fiscal Year 1998 Consolidated Financial Statements, Ernst & 

Young LLP, November 1999.
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The Department of Housing and Urban Development (HUD) also 

experienced problems after it failed to successfully plan and implement a 

new system. To correct financial management deficiencies, HUD initiated a 

project to design and implement an integrated financial system, HUD’s 

Central Accounting and Program System (HUDCAPS); however, the IG 

found problems with the project.48 The IG reported that the decision to 

implement HUDCAPS as the core accounting system for the department 

was made without a complete and thorough analysis of alternatives. After 

much effort, schedule delays, and cost increases, HUDCAPS was prepared 

to operate as a departmentwide system beginning in fiscal year 1999. 

However, the IG determined that as implemented, HUDCAPS did not fully 

comply with federal financial management systems requirements and that a 

lack of integration between program and accounting systems necessitated 

duplicate data entry. Further, data in a separate system at HUD’s Federal 

Housing Authority were not updated in HUDCAPS in a timely manner. The 

problems with HUDCAPS caused HUD to delay closing of the general 

ledger and preparation of the financial statements, which, in turn, 

contributed to the IG’s disclaimer of opinion49 on HUD’s fiscal year 1999 

financial statements.

Fourteen agencies have plans to implement or overhaul their core financial 

management systems or to install new software. Some of these 14 agencies 

are in the process of implementing new systems or software, while others 

are in the planning stages. Implementing or overhauling financial 

management systems will understandably take time, and the systems may 

not be operational for several years. For example, HCFA has several 

projects planned and underway that are intended to correct problems 

identified during financial statement audits. As we reported in March,50

these projects include (1) developing an integrated accounting system to 

include both the tracking of Medicare overpayments and financial 

reporting and (2) developing two new systems to improve oversight and 

financial reporting over Medicare receivables. While the integrated 

48Report on Efforts to Audit the U.S. Department of Housing and Urban Development’s 

Fiscal Year 1999 Financial Statements (00-FO-177-0003, March 1, 2000).

49A disclaimer of opinion means the auditors are unable to determine the overall fairness of 

the financial statements. This type of result might occur if the audit revealed the system of 

internal control to be grossly inadequate or if the auditors for any reason did not or could 

not perform sufficient work to have a basis for an opinion. 

50Medicare Financial Management: Further Improvements Needed to Establish Adequate 

Financial Control and Accountability (GAO/AIMD-00-66, March 15, 2000).
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accounting system has the potential to provide major improvements in 

HCFA’s financial management, successful implementation will require welldefined plans and sustained management focus over the 3- to 5-year 

implementation period. HCFA hired an experienced systems development 

specialist to help ensure successful implementation of this integrated 

accounting system.

To ensure that IT dollars are directed toward prudent investments designed 

to achieve cost savings, increase productivity, and improve the timeliness 

and quality of service delivery, agencies need to apply the framework 

outlined in the Clinger-Cohen Act of 1996 and implementing guidance.51

This includes adopting sound IT investment and control processes, 

designing well-developed architectures to guide information flows and 

technical standards, and establishing disciplined approaches for 

developing and acquiring computer software.

In this regard, we have worked on strengthening federal agency 

management of IT investment and have developed guidance based on best 

practices in the public and private sectors related to IT investment. Two 

guides resulting from our work are

• Assessing Risks and Returns: A Guide for Evaluating Agencies’ IT 

Investment Decision-making (GAO/AIMD-10.1.13, February 1997) and

• Executive Guide: Measuring Performance and Demonstrating Results of 

Information Technology Investments (GAO/AIMD-98-89, March 1998).

However, it is important to remember that these guides are not a “silver 

bullet” to guarantee success. Rather, the key is for organizations to adopt 

and effectively implement policies and procedures, such as those described 

in the guides, that foster the necessary discipline for the organizations to 

produce predictable and repeatable results. Therefore, it is critical that 

each organization first choose the practices that are compatible with its 

culture and then effectively implement those practices.

OMB officials told us that they are working with agencies regarding the 

application of the framework outlined in the Clinger-Cohen Act. According 

to the OMB officials, OMB’s review of agencies’ IT capital asset planning 

51The Clinger-Cohen Act builds on the best practices of leading public and private 

organizations by requiring agencies to better link IT planning and investment decisions to 

program missions and goals.
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processes is linked to its review of agencies’ remediation plans. This review 

process is discussed further in the next section.

OMB Plays an 

Important Role by 

Providing Guidance on 

FFMIA Implementation 

Issues

OMB plays a vital role in providing agencies and auditors with guidance 

and ensuring that agencies have adequate resources to effect the necessary 

corrective actions. Specifically, OMB provides (1) guidance and assistance 

to agencies related to preparing remediation plans, (2) FFMIA 

implementation guidance for agencies and auditors, and (3) requirements 

for auditors of agency financial statements, including requirements for 

reporting compliance with FFMIA.

Remediation Plan Guidance 

and Assistance

The advisory role FFMIA established for OMB with respect to agency 

remediation plans is important for addressing the types of problems we 

noted in the remediation plans we reviewed. Therefore, last year we 

recommended that OMB work with the agencies to ensure that all 

remediation plans are prepared and submitted timely. We also 

recommended that OMB review agencies’ plans for (1) detailed corrective 

actions that fully address reported problems, (2) inclusion of resource 

requirements, and (3) specific time frames needed to implement and 

resolve problems.

OMB officials told us that they have adopted a new approach for reviewing 

agencies’ remediation plans.52 An integral part of this new approach is 

integrating FFMIA and financial management systems issues, especially 

plans to overhaul or replace financial management systems, with agencies’ 

IT capital planning and budgeting processes. OMB officials told us that they 

met with officials from 20 agencies this summer to discuss their upcoming 

budget submissions and FFMIA remediation plans. The purpose of these 

meetings was to present OMB’s new approach and to let managers know 

that FFMIA remediation plans would be considered in conjunction with 

agencies’ capital asset plans and overall systems architectures. According 

to OMB officials, these meetings were attended by officials and staff from 

three OMB offices—the Office of Federal Financial Management, the Office 

of Information and Regulatory Affairs, and the Office of Federal 

Procurement Policy—as well as OMB’s resource management officers 

52Although this approach is new, according to OMB officials, remediation activities 

underway at agencies previously reported to OMB are considered in this process.
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(formerly known as budget examiners) assigned to the agencies. Agency 

officials attending the meetings included the agencies’ CFOs, chief 

information officers, and budget and procurement executives. In addition 

to the meetings held this summer, OMB has conducted training for agency 

managers and staff about its new approach of integrating financial 

management systems planning with IT strategies and capital budgeting. 

OMB’s new approach should help it carry out its advisory role established 

by FFMIA. The meetings between OMB and agency officials can provide a 

strategic perspective on financial and technical issues related to developing 

and implementing fully integrated financial management systems. With this 

new approach, OMB intends to ensure that remediation plans are 

(1) integrated into the agency’s IT strategy, (2) well documented, and 

(3) supported by the agency’s budget requests. However, because the 

approach is new, we cannot comment on whether it will be successful in 

improving agencies’ remediation plans and thus improve financial 

management in general.

Guidance to Agencies and 

Auditors

OMB has recently proposed revisions to OMB Bulletin No. 98-08, Audit 

Requirements for Federal Financial Statements. We have reviewed the 

proposed revisions relating to the (1) implementation guidance for 

agencies and auditors and (2) FFMIA compliance reporting requirements 

for auditors of agencies’ financial statements. We are working with OMB to 

address our concerns.

Other Efforts to 

Improve Financial 

Management

Other efforts across government are also underway to help agencies 

improve their systems and financial management overall. JFMIP tests 

commercial off-the-shelf software for compliance with current systems 

requirements and updates and issues systems requirements documents. 

Also, tools for auditors and agencies to use when reviewing systems for 

compliance with FFMIA are contained in an exposure draft of a review 

guide issued by JFMIP and the CFO Council and in checklists that we have 

published.

JFMIP Software 

Certification

An important effort focused specifically on improving federal financial 

systems is the work of the JFMIP. In a governmentwide cooperative effort 

to improve federal financial systems, JFMIP established its Program 

Management Office (PMO) in 1998 with resources provided by the 24 CFO 
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Act agencies to assist agencies and vendors in developing and 

implementing commercial off-the-shelf software that complies with current 

financial management system requirements. PMO’s responsibilities include, 

among other things, developing comprehensive testing vehicles, 

interpreting requirements, serving as an information clearinghouse for 

federal financial systems, and facilitating communication with the private 

sector.

In fiscal year 1999, PMO implemented a new software testing process in 

which it tests vendor products to certify that they meet current JFMIP 

systems requirements. PMO publishes the testing results in its Web-based 

electronic repository, called the Knowledgebase, which also includes 

information for agencies and vendors about financial systems 

requirements, business practices, and certified vendor products. JFMIPcompliant systems help assure an agency that the system properly records 

transactions defined in JFMIP’s Core Financial System Requirements. 

However, agencies will still need to define their business requirements and 

then compare the various applications against those requirements to 

identify gaps. Once these gaps are identified, agencies need to determine 

the cost, schedule, and performance impacts associated with these gaps 

and determine the best approach to accomplishing the requirement—

modifying the system or, if the desired functionality is not cost effective, 

eliminating the requirement. OMB Circular A-127, Financial Management 

Systems, requires that agencies replacing software to meet core financial 

system requirements use off-the-shelf software that has been tested and 

certified through the JFMIP software certification process as meeting 

JFMIP core financial system requirements.
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Tools for Reviewing 

Compliance With FFMIA

JFMIP, in cooperation with the CFO Council, has issued an exposure draft 

of a guide53 to assist agencies in reviewing financial management systems 

as required by FFMIA and other legislation. This guide serves as a tool to 

assist agency managers in determining whether their agencies’ financial 

management systems comply with FFMIA, as well as the Financial Integrity 

Act and OMB Circular A-127. Although the guide is written for use by 

agency managers, the guide will also assist auditors conducting reviews 

under FFMIA by helping them understand how financial and program 

managers evaluated their systems. As of September 2000, the exposure 

draft was being revised to incorporate final comments of the JFMIP 

Steering Committee.54

We have also published checklists to assist agencies in implementing and 

monitoring their systems and to assist management and auditors in 

reviewing systems to determine whether they are in substantial compliance 

with FFMIA. The checklists are based on JFMIP systems requirements 

documents. We issue them when JFMIP requirements are published for the 

first time and when requirements are updated. Table 6 lists the checklists 

we have issued in final form or as exposure drafts.

Table 6: Checklists for Reviewing Systems Under the Federal Financial Management Improvement Act

53Financial Management Systems Compliance Review Guide, JFMIP-MI-99-15, October 1999, 

exposure draft.

54The Steering Committee is responsible for the general direction of JFMIP and is comprised 

of representatives from GAO, Treasury, OMB, OPM, and a program agency.

Checklist Issue date

GAO/AIMD-98-21.2.1 Framework for Federal Financial Management System Checklist May 1998

GAO/AIMD-00-21.2.2 Core Financial System Requirements Checklist February 2000

GAO/AIMD-00-21.2.3 Human Resources and Payroll Systems Checklist March 2000

GAO/AIMD-98-21.2.4 Inventory System Checklist May 1998

GAO/AIMD-21.2.5 Seized Property and Forfeited Assets System Requirements Checklist (exposure draft) April 2000

GAO/AIMD-21-2.6 Direct Loan System Requirements Checklist April 2000

GAO/AIMD-21-2.7 Guaranteed Loan System Requirements (exposure draft) August 2000

GAO/AIMD-21.2.8 Travel System Requirements Checklist May 2000

GAO/AIMD-99-21.2.9 System Requirements for Managerial Cost Accounting Checklist January 1999
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Lessons Learned From 

Year 2000 Efforts

The leadership and partnerships established to successfully address the 

Year 2000 computing problem provide valuable lessons that can also be 

used to address financial management reform across government. In our 

October 1999 FFMIA report,55 we noted that addressing Year 2000 

conversion issues was understandably a priority for federal agencies and 

that Year 2000 preparation had resulted in delaying financial systems 

changes in some agencies. We also reported that over the long term, there 

should be residual benefits from Year 2000 efforts. Now that the federal 

government has made the successful conversion to Year 2000, it can apply 

those valuable lessons to other critical management challenges.

We testified in January about the Year 2000 computing challenge, including 

lessons that can be carried forward to improve the management of 

information technology activities.56 Among the lessons learned were the 

importance of (1) providing high-level congressional and executive branch 

leadership, (2) understanding the importance of computer-supported 

operations, (3) providing standard guidance, (4) establishing partnerships, 

(5) facilitating progress and monitoring performance, and (6) implementing 

fundamental IT improvements. The Year 2000 efforts have reinforced an 

understanding of the importance of consistent and persistent top 

management attention, which is essential to solving any intractable 

problem. In a recently issued report on how lessons learned can be applied 

to other management challenges, we reiterated that high-level management 

attention was key to successfully meeting the Year 2000 challenge.57 We 

reported that while the Year 2000 problem was technical in nature, it was 

primarily a management problem, with organizations facing the risk of 

disruptions of their core business processes. Federal officials and other 

participants in a Year 2000 lessons learned summit cited high-level 

leadership and top management involvement as key to Year 2000 success.

According to officials at OMB, the Year 2000 problem also gave agency 

chief information officers a “crash course” in how to accomplish projects. 

Many chief information officers were relatively new in their positions, and 

55Financial Management: Federal Financial Management Improvement Act Results for Fiscal 

Year 1998 (GAO/AIMD-00-3, October 1, 1999).

56Year 2000 Computing Challenge: Leadership and Partnerships Result in Limited Rollover 

Disruptions (GAO/T-AIMD-00-70, January 27, 2000).

57Year 2000 Computing Challenge: Lessons Learned Can Be Applied to Other Management 

Challenges (GAO/AIMD-00-290, September 12, 2000).
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expediting Year 2000 efforts required many of them to quickly gain an 

understanding of their agencies’ systems, work extensively with agency 

program managers and CFOs, and become familiar with budgeting and 

financial management practices. Addressing these issues, in turn, provided 

them with real-time experience in responding to far-reaching management 

problems and in finding solutions. These experiences could prove valuable 

to resolving the systems issues impeding compliance with FFMIA.

Conclusions Long-standing problems with agencies’ financial systems make it difficult 

for the agencies to produce reliable, useful, and timely financial 

information and hold managers accountable. Federal managers need this 

important information for formulating budgets, managing government 

programs, and making difficult policy choices. The extraordinary efforts 

that many agencies go through to produce auditable financial statements 

are not sustainable in the long term. These efforts use significant resources 

that could and should be used for other important financial-related work. 

For these reasons, the widespread systems problems facing the federal 

government need top management attention. We learned from the Year 

2000 experience that proactive leadership at the highest levels of 

government is one of the most important factors in prompting attention 

and action on a widespread problem.

The federal government’s size and complexity and the discipline needed to 

overhaul or replace its financial management systems present a significant 

challenge—not simply a challenge to overcome a technical glitch, but a 

demanding management challenge that requires attention from the highest 

levels of government. We recognize that it will take time, investment, and 

sustained emphasis on correcting deficiencies to improve federal financial 

management systems to the level required by FFMIA and to effectively 

manage government funds. The significance of the issues facing agencies, 

now and in the future, emphasizes the need for detailed remediation plans. 

As envisioned by the act, these remediation plans would help agencies 

establish seamless systems and processes to routinely generate reliable, 

useful, and timely information that would improve agencies’ accountability 

and help them to meet the statutory deadline for issuing audited financial 

statements. 

Because OMB’s approach for reviewing agencies’ remediation plans is new, 

we cannot yet determine whether it will be successful. As part of our next 

annual review of FFMIA compliance, we will evaluate whether this new 

approach fully addressed our recommendation in our prior report 
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regarding OMB’s role related to ensuring the adequacy of agencies’ 

remediation plans. 

Also, until all 24 CFO Act agencies can meet the statutory deadline for 

issuing audited financial statements, OMB and agencies’ efforts must 

continue. Therefore, we reaffirm the recommendation we made in our prior 

report that the Director of OMB require the Deputy Director for 

Management to work with the agencies to ensure that the agencies’ 

financial statements are audited and issued by the March 1 statutory 

deadline. With concerted effort, including attention from top agency 

management and the Congress, the federal government can improve its 

financial management systems and thus achieve the goals of the CFO Act 

and provide accountability to the nation’s taxpayers.

Agency Comments and 

Our Evaluation

In comments on a draft of this report, OMB stated that it concurs with 

FFMIA’s compliance requirements, but believes our report does not give 

credit for progress made or improvement efforts underway by agencies. 

OMB also expressed concern that, as currently written in OMB guidance, 

compliance requirements were black and white—meaning an agency was 

either compliant or not compliant. OMB stated that such an approach does 

not measure the progress many agencies are making in one or more of the 

three compliance areas—federal financial management systems 

requirements, applicable federal accounting standards, and the SGL at the 

transaction level. We agree with OMB’s comment that it is important to 

measure progress toward improvement and acknowledge that the agencies 

are moving in the right direction. Accordingly, our report states that 

agencies are slowly making progress towards compliance with FFMIA’s 

requirements. While FFMIA requires reporting on whether or not an 

agency’s systems comply with the act’s requirements, a number of avenues 

exist for reporting progress. We plan to work with OMB to enhance the 

reporting by agencies, auditors, and OMB on progress made in achieving 

compliance with FFMIA.

In its comments, OMB also discussed the applicability of information 

security requirements in assessing compliance with FFMIA. OMB stated 

that some problems relating to systems security must be addressed at a 

departmentwide level by the Chief Information Officer. OMB stated that 

many of the problems with information security that we highlighted in the 

report are in mixed or enterprise systems well beyond the influence of the 

CFO. We agree that information security is an agencywide responsibility, 

not limited to efforts directly under the purview of the agency CFO. 
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However, it is important to recognize that FFMIA not only applies to 

financial systems, but also to the financial portion of mixed systems. To the 

extent the financial and non-financial portions of mixed systems cannot be 

separated for purposes of information security controls, the mixed systems 

in their entirety necessarily are subject to FFMIA. Further, nothing in 

FFMIA limits its application to systems within the influence of the agency 

CFO. Rather, FFMIA refers only to agency systems and vests ultimate 

responsibility in the agency head for determining whether agency systems 

comply with FFMIA requirements and for establishing remediation plans. 

Therefore, we continue to believe that when reviewing financial 

management systems for compliance with FFMIA, security controls over 

financial and mixed systems would appropriately be included.

OMB also had numerous other comments that we incorporated into the 

report as appropriate. Appendix I includes OMB’s comments and our 

responses.

We are sending copies of this report to Senator George V. Voinovich, 

Chairman, and Senator Richard J. Durbin, Ranking Minority Member, 

Subcommittee on Oversight of Government Management, Restructuring, 

and the District of Columbia, Senate Committee on Governmental Affairs; 

and to Representative Stephen Horn, Chairman, and Representative Jim 

Turner, Ranking Minority Member, Subcommittee on Government 

Management, Information and Technology, House Committee on 

Government Reform. We are also sending copies to the Honorable Jacob J. 

Lew, Director of the Office of Management and Budget; the Honorable 

Lawrence H. Summers, Secretary of the Treasury; the heads of the 24 CFO 

Act agencies; and agency CFOs and IGs. Copies will also be made available 

to others upon request.
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This report was prepared under the direction of Gloria L. Jarmon, Director, 

Health, Education, and Human Services Accounting and Financial 

Management Issues, who may be reached at (202) 512-4476 or by e-mail at 

jarmong.aimd@gao.gov if you have any questions. Key contributors to this 

assignment were Kay Daly, Diane Morris, Sandra Silzer, and Meg Mills.

David M. Walker

Comptroller General

of the United States
Page 46 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

Appendix I

Comments From the Office of Management Apendxies

and Budget ApendxiI

Note: GAO comments 

supplementing those in the 

report text appear at the end 

of this appendix.

See comment 1.
Appendix I

Comments From the Office of Management 

and Budget

Page 47 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

See comment 2.

See comment 3.

See comment 4.

See comment 5.

See comment 6.

See comment 7.

Now on pp. 4 and 38.

Now on p. 11.

Now on p. 11.

Now on p. 14.

Now on p. 15.

Now on pp. 16-17.
Appendix I

Comments From the Office of Management 

and Budget

Page 48 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

See comment 7.

See comment 8.

See comment 9.

See comment 10.

See comment 11.

See comment 12.

See comment 13.

Now on pp. 21 and 23.

Now on pp. 19 and 20.

Now on p. 18.

Now on p. 17.
Appendix I

Comments From the Office of Management 

and Budget

Page 49 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

See comment 14.

Now on p. 27.

See comment 15.

Now on pp. 28 and 20.

See comment 16.

Now on p. 30.

See comment 17.

Now on p. 30.

See comment 18.

Now on p. 33.

See comment 19.

Now on pp. 36, 4, and 37.

Now on p. 27.
Appendix I

Comments From the Office of Management 

and Budget

Page 50 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

See comment 20.

Now on p. 37.

See comment 21.

Now on p. 38.

See comment 22.

Now on p. 40.

Now on p. 40.
Appendix I

Comments From the Office of Management 

and Budget

Page 51 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

The following are GAO’s comments on the Office of Management and 

Budget’s September 21, 2000, letter.

GAO Comments 1. See “Agency Comments and Our Evaluation” section.

2. The report was revised to address OMB’s comment.

3. The report was revised to address OMB’s comment.

4. The report was revised to address OMB’s comment.

5. See “Agency Comments and Our Evaluation” section.

6. We disagree that a correlation between clean opinions and FFMIA 

compliance cannot be drawn. The report is intended to convey the 

message that some agencies had to use “heroic efforts” to produce 

financial statements because their systems could not produce them. 

One of the reasons the systems could not produce the financial 

statements is because they do not comply with FFMIA’s requirements.

7. The main source for this section of the report is agency audit reports. 

Therefore, table 4 summarizes auditors’ FFMIA determinations and 

financial statement opinions. To address this concern, we added a note 

to the table that discusses determinations made by agency 

management. We also discuss the agencies that disagreed with their 

auditors’ FFMIA determinations in footnote 18 on page 14 and in the 

remediation plans section on page 30.

8. The report was revised to address OMB’s comments.

9. We agree that the ability to provide financial data to program managers 

that is timely and useful is a key indicator of the quality of financial 

data. This is the end game that we discuss in our report. At the same 

time, we do not agree that results of financial statement audits do not 

provide a measure of accountability to the public. Audit results show 

whether the information in the financial statements is reliable and fairly 

presented. Audit results have been one of the key indicators for both 

government and private industry to provide accountability.

10. Language was added to the report to show that the basis for this 

conclusion is discussed in the sections that follow.
Appendix I

Comments From the Office of Management 

and Budget

Page 52 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

11. The purpose of table 5 is to show the most commonly reported 

problems relevant to FFMIA, as explained in the paragraph preceding 

the table. As discussed in the text, this table covers more than specific 

reasons for noncompliance with FFMIA, so a discussion of agencies’ 

FFMIA determinations is not appropriate here. Table 4 shows the three 

requirements in the law—systems requirements, applicable federal 

accounting standards, and SGL compliance—and what auditors 

reported regarding these three areas.

12. The changes suggested by OMB in its comments illustrate the need to 

clarify guidance to auditors for reporting on compliance with FFMIA. 

We note that OMB’s recently proposed revisions to the audit guidance 

in Bulletin 98-08 should help to do this.

We have revised tables 4 and 5 to show that NRC experienced 

difficulties complying with the SGL requirements of FFMIA. We agree 

that the consolidated audit report for the Department of Justice did not 

specifically mention noncompliance with the SGL. However, the 

consolidated audit report referred to component audit reports. The 

auditors of the Immigration and Naturalization Service (INS), a major 

component of the Department of Justice, cited noncompliance with the 

SGL in the INS’ audit report; therefore, we included this as a problem 

reported by auditors (table 5). Regarding the Environmental Protection 

Agency (EPA), the audit report stated that, in most cases, EPA could 

not report its intragovernmental assets and liabilities by trading partner 

because finance offices were not coding transactions to show this 

information. We interpret this as a SGL noncompliance issue because 

reporting intragovernmental transactions by trading partner is an SGL 

requirement.

13. We did not intend to imply that other systems requirements are less 

significant. Our intention was to highlight major areas needing 

attention that were most often cited by auditors.

14. See “Agency Comments and Our Evaluation” section.

15. The report was revised to address OMB’s comment.

16. The report was revised to address OMB’s comment.

17. The report was revised to address OMB’s comment.
Appendix I

Comments From the Office of Management 

and Budget

Page 53 GAO/AIMD-00-307 FFMIA Results for Fiscal Year 1999

18. We reviewed fiscal year 1998 remediation plans that were prepared 

before OMB adopted this new approach for reviewing the plans. Fiscal 

year 1999 remediation plans are not due to OMB, and therefore will not 

be available, until December 2000. We believe that OMB’s approach to 

consider the whole IT capital investment plan has merit, and as part of 

our work for next year’s report, we will review this approach. At the 

same time, FFMIA requires that remediation plans contain resources, 

and therefore, elements of the remediation plan that are included in 

other documents should be referred to in order to assist the plan’s users 

and fulfill the requirements of FFMIA. The fiscal year 1998 remediation 

plans we reviewed generally did not refer the reader to IT capital 

investment plans to identify resources needed.

19. The report was revised to address OMB’s comments.

20. The report was revised to address OMB’s comments.

21. The report was revised to address OMB’s comments.

22. The report was revised to address OMB’s comments.

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