a

GAO

United States Government Accountability Office

Report to Congressional Committees

October 2004 FINANCIAL 

MANAGEMENT

Improved Financial 

Systems Are Key to 

FFMIA Compliance

GAO-05-20
www.gao.gov/cgi-bin/getrpt?GAO-05-20.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sally 

Thompson at (202) 512-2600 or 

thompsons@gao.gov. 

Highlights of GAO-05-20, a report to the 

Senate Committee on Governmental 

Affairs and the House Committee on 

Government Reform. 

October 2004

FINANCIAL MANAGEMENT 

Improved Financial Systems Are Key to 

FFMIA Compliance 

Federal agencies continue to make progress in addressing their financial 

management weaknesses; however, for fiscal year 2003, auditors for 17 of 

the 23 CFO Act agencies still reported that agencies’ financial management 

systems failed to comply with FFMIA. The nature and severity of the 

reported problems indicate that generally agency management lacked the 

full range of reliable, useful, and timely information needed for 

accountability, performance reporting, and decision making. As shown in 

the figure below, six main types of problems related to agencies’ systems 

were consistently identified. 

Problems Reported by Auditors for Fiscal Years 2000 through 2003 

Note: Based on independent auditors’ reports for fiscal years 2000 – 2003, prepared by agency 

inspectors general and contract auditors. 

As prescribed in OMB’s reporting guidance, auditors for six agencies 

provided negative assurance on agency systems’ FFMIA compliance for 

fiscal year 2003. This means that nothing came to their attention to indicate 

that financial management systems did not meet FFMIA requirements. GAO 

continues to believe that this type of reporting is not sufficient under the act 

and that report users may have the false impression that auditors have 

reported agency systems to be compliant. 

To address problems such as nonintegrated systems, inadequate 

reconciliations, and lack of SGL compliance, agencies are implementing or 

upgrading financial management systems. Agencies anticipate the new 

systems will provide reliable, useful, and timely data to support managerial 

decision making. However, our work at DOD, HHS, and NASA has shown 

significant problems exist in implementing financial management systems 

and that agencies are not following the necessary disciplined processes for 

efficient and effective implementation of these systems. Disciplined 

processes have been shown to reduce the risks associated with software 

development and acquisition efforts to acceptable levels and are 

fundamental to successful system acquisition and implementation. 

Moreover, governmentwide initiatives to improve financial management 

systems can help enhance the government’s performance and services for 

citizens. 

The ability to produce the data 

needed to efficiently and effectively

manage the day-to-day operations 

of the federal government and 

provide accountability to taxpayers 

has been a long-standing challenge 

to most federal agencies. To help 

address this challenge, the Federal 

Financial Management 

Improvement Act of 1996 (FFMIA) 

requires the 23 Chief Financial 

Officers Act agencies 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) at the transaction 

level. FFMIA also requires GAO to 

report annually on the 

implementation of the act. 

GAO reaffirms its prior 

recommendations that OMB revise 

its FFMIA audit guidance to: 

(1) include a statement of 

positive assurance when 

reporting an agency’s 

systems to be in substantial 

compliance with FFMIA, and 

(2) clarify the definition of 

“substantial compliance” to 

promote consistent reporting 

of FFMIA compliance. 

As in the past, OMB did not agree 

with our view on the need for 

auditors to provide positive 

assurance on FFMIA, but agreed to 

consider clarifying the definition of 

“substantial compliance” in future 

policy and guidance updates. 
Page i GAO-05-20 FFMIA FY 2003 Results

Contents

Letter 1

Results in Brief 2

Background 8

Scope and Methodology 13

Continued Systems Weaknesses Impede Financial Management 

Accountability 14

Agencies Struggle to Implement New Financial Systems 29

Conclusions 43

Agency Comments and Our Evaluation 45

Appendixes

Appendix I: Requirements and Standards Supporting Federal Financial 

Management 47

Appendix II: Publications in the Federal Financial Management Systems 

Requirements Series 52

Appendix III: Statements of Federal Financial Accounting Concepts, 

Statements of Federal Financial Accounting Standards, and 

Interpretations 53

Appendix IV: AAPC Technical Releases 55

Appendix V: Checklists for Reviewing Systems under the Federal 

Financial Management Improvement Act 56

Appendix VI: Comments from the Office of Management and Budget 57

Appendix VII: GAO Contacts and Staff Acknowledgments 59

GAO Contacts 59

Acknowledgments 59

Table Table 1: PMO-Certified Core Financial Systems 12

Figures Figure 1: Problems Reported by Auditors for Fiscal Years 2000 

through 2003 4

Figure 2: Pyramid to Accountability and Useful Management 

Information 9

Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 2000 

through 2003 16

Figure 4: Problems Reported by Auditors for Fiscal Years 2000 

through 2003 22
Contents

Page ii GAO-05-20 FFMIA FY 2003 Results

Figure 5: Agency Systems Architecture 48

Abbreviations

AAPC Accounting and Auditing Policy Committee 

AID Agency for International Development 

ARS Accrual Reporting System 

BSM Business Systems Modernization 

CDC Centers for Disease Control and Prevention 

CFO chief financial officer

CMS Centers for Medicare and Medicaid Services 

CoreFLS Core Financial and Logistics System 

COTS commercial off-the-shelf 

DHS Department of Homeland Security 

DLA Defense Logistics Agency

DOD Department of Defense

EPA Environmental Protection Agency 

FAM GAO/PCIE Financial Audit Manual

FASAB Federal Accounting Standards Advisory Board 

FFMIA Federal Financial Management Improvement Act

FFMSR Federal Financial Management System Requirements 

FIA Federal Managers’ Financial Integrity Act 

FISMA Federal Information Security Management Act 

GSA General Services Administration 

HHS Department of Health and Human Services

IEEE Institute of Electrical and Electronic Engineers 

IFMP Integrated Financial Management Program 

IRS Internal Revenue Service

JFMIP Joint Financial Management Improvement Program 

LOB Line of Business

LMP Logistics Modernization Program 

NASA National Aeronautics and Space Administration 

NBRSS NIH Business and Research Support System 

NIH National Institutes of Health 

NRC Nuclear Regulatory Commission 

NSF National Science Foundation 

OIG Office of Inspector General 

OMB Office of Management and Budget
Contents

Page iii GAO-05-20 FFMIA FY 2003 Results

OPM Office of Personnel Management 

PART Performance and Assessment Rating Tool

PCIE President’s Council on Integrity and Efficiency 

PMA President’s Management Agenda 

PMO Program Management Office 

SEI Software Engineering Institute 

SFFAC Statements of Federal Financial Accounting Concepts

SFFAS Statement of Federal Financial Accounting Standards 

SGL U.S. Government Standard General Ledger

SSA Social Security Administration 

UFMS Unified Financial Management System

VA Department of Veterans Affairs 

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Page 1 GAO-05-20 FFMIA FY 2003 Results

United States Government Accountability Office

Washington, D.C. 20548

Comptroller General A of the United States

October 1, 2004 Letr

The Honorable Susan M. Collins

Chairman

The Honorable Joseph I. Lieberman

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Tom Davis

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform

House of Representatives

Many federal agencies still lack the ability to produce the data needed to 

efficiently and effectively manage day-to-day operations and provide an 

acceptable level of accountability to taxpayers. To address this longstanding weakness of the federal government, the Chief Financial Officers 

(CFO) Act of 19901

 designates executive branch officials with 

responsibility for the modernization of financial management systems, so 

that the systematic measurement of performance; the development of cost 

information; and the integration of program, budget, and financial 

information for management reporting can be achieved.

The Federal Financial Management Improvement Act of 19962 (FFMIA) 

builds on the foundation laid by the CFO Act by reflecting the need for 

agencies to have systems that can generate reliable, useful, and timely 

information with which to make fully informed decisions and to ensure 

1

Pub. L. No. 101-576, 104 Stat. 2838 (1990).

2

Federal Financial Management Improvement Act of 1996, Pub. L. No. 104-208, div. A., § 

101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996).
Page 2 GAO-05-20 FFMIA FY 2003 Results

accountability on an ongoing basis. FFMIA requires the CFO Act agencies3

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) at the transaction level. The act also 

requires auditors to state in their audit reports whether the agencies’ 

financial management systems substantially comply with the act’s 

requirements. Furthermore, we are required to report annually on the 

implementation of the act. This report, our eighth, discusses (1) the 

auditors’ assessments of agency systems’ compliance with FFMIA for fiscal 

year 2003 and the financial management systems problems that continue to 

affect systems’ FFMIA compliance and (2) the challenges agencies have 

faced when implementing financial systems to help move toward FFMIA 

compliance.

We conducted our work from April through August 2004 in the Washington, 

D.C., area in accordance with U.S. generally accepted government auditing 

standards. 

Results in Brief Although agencies continue to make some progress in addressing their 

financial management systems weaknesses, the fiscal year 2003 audit 

reports disclose that agencies’ financial management systems continue to 

have serious deficiencies. As a result of these deficiencies, most agencies’ 

financial management systems are still unable to routinely produce 

reliable, useful, and timely financial information. This weakness manifests 

itself by limiting the federal government’s capacity to manage with timely 

and objective data, and thereby hampers its ability to effectively manage 

and oversee its major programs.

Auditors for 17 of the 23 CFO Act agencies reported that their agencies’ 

financial management systems did not comply substantially with one or 

3

There were initially 24 CFO Act agencies. (See Pub. L. No. 101-576, §205, 104 Stat. 2838, 

2842-43 (1990)). The Federal Emergency Management Agency, one of the 24 CFO Act 

agencies, was subsequently transferred to the new Department of Homeland Security (DHS) 

created effective March 1, 2003. DHS must prepare audited financial statements under the 

Accountability of Tax Dollars Act of 2002 (Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002)). 

However, DHS was not established as a CFO Act agency and therefore is not subject to 

FFMIA. Consideration is now being given by each house of Congress to adding DHS to the 

list of CFO Act agencies in the Department of Homeland Security Financial Accountability 

Act, H.R. 4259 and S. 1567, 108th Congress.
Page 3 GAO-05-20 FFMIA FY 2003 Results

more of the three FFMIA requirements. Auditors’ assessments for three 

agencies changed from fiscal year 2002 to 2003. For fiscal year 2003, 

auditors for the Department of Commerce were able to provide negative 

assurance due to the implementation of a new integrated financial 

management system and improvements in general information technology 

controls. Auditors at the Nuclear Regulatory Commission (NRC) were also 

able to provide negative assurance due to a redesign of the agency’s cost 

accounting system and enhancement of the internal controls and operating 

procedures documentation. Systems of both agencies had been reported 

as lacking substantial compliance with FFMIA for fiscal year 2002. 

Conversely, auditors for the General Services Administration (GSA), which 

implemented a new financial management system in fiscal year 2002, 

reported that GSA’s systems lacked substantial compliance for fiscal year 

2003 because they did not substantially comply with federal financial 

management systems requirements. Specifically, the auditors found that 

GSA lacked adequate policies and procedures for reconciliations and that 

the reconciliations performed were not completed in a timely manner, a 

downgrade from the fiscal year 2002 assessment. 

The Department of Homeland Security (DHS) is currently not subject to the 

CFO Act and, consequently, is not required to comply with FFMIA. 

Accordingly, DHS’ auditors did not report on the department’s compliance 

with FFMIA. However, the auditors did identify and report certain 

deficiencies that relate to the three FFMIA requirements. Based on its 

budget, DHS is the largest entity in the federal government that is neither 

subject to the CFO Act nor required to comply with FFMIA system 

requirements. Given the need for strong financial management, 

consideration is now being given by each house of Congress to adding DHS 

to the list of CFO Act agencies.

Auditors for six agencies4 reported that the results of their tests disclosed 

no instances in which the agencies’ systems did not substantially comply 

with FFMIA. The auditors did not provide positive assurance by 

definitively stating whether the agencies’ financial management systems 

substantially complied with FFMIA. Instead, the auditors provided 

negative assurance of FFMIA compliance as permitted by the Office of 

Management and Budget’s (OMB) audit guidance. To provide positive 

4

The Department of Commerce (Commerce), the Department of Energy (Energy), the 

Environmental Protection Agency (EPA), the National Science Foundation (NSF), the 

Nuclear Regulatory Commission (NRC), and the Social Security Administration (SSA). 
Page 4 GAO-05-20 FFMIA FY 2003 Results

assurance as required by the act, more testing is necessary than that 

performed for the purposes of rendering an opinion on the financial 

statements. 

Based on our review of the fiscal year 2003 audit reports for the 17 agencies 

reported to have noncompliant systems, we identified six continuing, 

primary problems that affect FFMIA compliance. (See fig. 1.) While more 

severe at some agencies than others, the nature and seriousness of the 

reported problems indicate that generally most agencies’ financial 

management systems are not yet able to routinely produce reliable, useful, 

and timely financial information.

Figure 1: Problems Reported by Auditors for Fiscal Years 2000 through 2003 

Note: Based on independent auditors’ reports for fiscal years 2000-2003, prepared by agency 

inspectors general and contract auditors.

Many agencies are in the process of updating or replacing their core 

financial systems as part of their financial management system 

13

16

14

8

12

19

14

13

14

15

8

14

20

13

11 11

10

11 11

17 17

9

13

19

0

4

8

12

16

20

24

Nonintegrated

financial 

management

systems

Inadequate

reconciliation

procedures

Lack of accurate 

and timely 

recording

Noncompliance 

with the SGL

Lack of adherence 

to federal accounting 

standards

Weak security 

over information 

systems

Agencies

Fiscal year 2000

Fiscal year 2001

Fiscal year 2002

Fiscal year 2003

Source: GAO analysis.
Page 5 GAO-05-20 FFMIA FY 2003 Results

improvement efforts. However, our work at the Department of Defense 

(DOD), the Department of Health and Human Services (HHS), and the 

National Aeronautics and Space Administration (NASA) and the work of 

the Department of Veterans Affairs (VA) Office of Inspector General (OIG) 

have shown that agencies face significant risk in implementing financial 

management systems and have not always followed accepted best 

practices for systems development and implementation, commonly 

referred to as disciplined processes, for efficient and effective system 

development and implementation of financial management systems.

Disciplined processes have been shown to reduce the risks associated with 

software development and acquisition efforts to acceptable levels and are 

fundamental to successful system acquisition and implementation. A 

disciplined software development and acquisition process can maximize 

the likelihood of achieving the intended results within established costs 

and on schedule. The key to having a disciplined system acquisition and 

implementation effort is to have disciplined processes in multiple areas, 

including requirements management, testing, project planning and 

oversight, risk management, and quality assurance.

We found in our review of agencies’ implementation of new financial 

management systems and a review by the VA OIG5

 also reported that 

disciplined processes are not being followed. For example:

• In May 2004, we reported6 that for two major DOD financial 

management systems, the initial deployments did not operate as 

intended and, therefore, did not meet component-level needs. In large 

part, these operational problems were due to DOD not effectively 

implementing the disciplined processes that are necessary to manage 

the development and implementation of the systems in the areas of 

requirements management and testing. DOD program officials have 

acknowledged that the initial deployments of these systems 

experienced problems that could be attributed to requirements and 

testing. 

5

U.S. Department of Veterans Affairs, Office of Inspector General, Issues at VA Medical 

Center Bay Pines, Florida and Procurement and Deployment of the Core Financial and 

Logistics System (CoreFLS), 04-01371-177 (Washington, D.C.: August 2004).

6

GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with 

Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: 

May 27, 2004).
Page 6 GAO-05-20 FFMIA FY 2003 Results

• In September 2004, we reported7 that the lack of disciplined processes 

puts implementation of HHS’ financial system at risk. HHS had not 

developed sufficient quantitative measures for determining the impact 

of process weaknesses, cannot be assured that the system will provide 

all of the functionality needed, and had not developed the necessary 

framework for testing requirements. Further, its schedule left little time 

for correcting process weaknesses and identified defects. As a result, 

HHS has decided to delay the implementation of a significant amount of 

functionality associated with the initial full deployment from October 

2004 until April 2005 in order to address the issues that had been 

identified with the project.

• As we have reported8 numerous times in 2003 and 2004, NASA faces 

considerable challenges in implementing a financial management 

system—the Integrated Financial Management Program (IFMP). NASA 

is on its third attempt in 12 years to modernize its financial management 

process and systems, and has spent about $180 million on its two prior 

failed efforts. NASA was not following key best practices for acquiring 

and implementing the system. For example, NASA lacked disciplined 

requirements management and testing processes. As a result, NASA 

increased its risk that IFMP would cost more and do less than planned. 

The core financial module, which was fully deployed in June 2003 as 

called for in the project schedule, still did not address many of the 

agency's most challenging external reporting issues, such as external 

reporting problems related to property accounting and budgetary 

accounting. Additionally, NASA deferred the configuration and testing 

7

GAO, Financial Management Systems: Lack of Disciplined Processes Puts 

Implementation of HHS’ Financial System at Risk, GAO-04-1008 (Washington, D.C.: Sept. 

23, 2004).

8

GAO, Business Modernization: Improvements Needed in Management of NASA’s 

Integrated Financial Management Program, GAO-03-507 (Washington, D.C.: Apr. 30, 2003); 

Information Technology: Architecture Needed to Guide NASA’s Financial Management 

Modernization, GAO-04-43 (Washington, D.C.: Nov. 21, 2003); Business Modernization: 

Disciplined Processes Needed to Better Manage NASA’s Integrated Financial Management 

Program, GAO-04-118 (Washington, D.C.: Nov. 21, 2003); Business Modernization: NASA’s 

Integrated Financial Management Program Does Not Fully Address Agency’s External 

Report Issues, GAO-04-151 (Washington, D.C.: Nov. 21, 2003); Business Modernization: 

NASA’s Challenges in Managing Its Integrated Financial Management Program, GAO-04-

255 (Washington, D.C.: Nov. 21, 2003); and National Aeronautics and Space 

Administration: Significant Actions Needed to Address Long-standing Financial 

Management Problems, GAO-04-754T (Washington, D.C.: May 19, 2004).
Page 7 GAO-05-20 FFMIA FY 2003 Results

of several essential capabilities of the financial module and is not 

FFMIA compliant.

• VA recently halted implementation of its new core financial system in 

July 2004 that had cost about $249 million. The VA OIG reported that 

contracting and monitoring of the VA project were not adequate and the 

pilot deployment of the system encountered multiple problems. 

As the federal government moves forward on new initiatives to enhance 

financial management and provide results-oriented information, it is 

crucial that disciplined processes are effectively used to reduce risks 

related to implementing governmentwide solutions. Moreover, ensuring 

that staff with the requisite skills are in place to implement and operate 

new financial management systems is critical to success.

While we are not making any new recommendations in this report, we 

reaffirm our prior recommendations9

 aimed at enhancing OMB’s audit 

guidance related to FFMIA assessments. Specifically, we recommended 

that OMB (1) require agency auditors to provide a statement of positive 

assurance when reporting an agency’s systems to be in substantial 

compliance with FFMIA and (2) further clarify the definition of “substantial 

compliance” to encourage consistent reporting. 

In commenting on a draft of this report, OMB agreed with our assessment 

that agencies have a long way to go before federal managers receive the 

data needed to efficiently and effectively manage the day-to-day operations 

of the federal government. Moreover, OMB agreed with us that financial 

management success encompasses more than agencies receiving 

unqualified opinions on their financial statements. As in previous years, we 

and OMB have differing views on the level of audit assurance necessary for 

assessing substantial compliance with FFMIA. We will continue to work 

with OMB on this issue. Our detailed evaluation of OMB’s comments can 

be found at the end of this letter. 

9

GAO, Financial Management: FFMIA Implementation Critical for Federal 

Accountability, GAO-02-29 (Washington, D.C.: Oct. 1, 2001); Financial Management: 

FFMIA Implementation Necessary to Achieve Accountability, GAO-03-31 (Washington, 

D.C.: Oct. 1, 2002); and Financial Management: Sustained Efforts Needed to Achieve 

FFMIA Accountability, GAO-03-1062 (Washington, D.C.: Sept. 30, 2003). 
Page 8 GAO-05-20 FFMIA FY 2003 Results

Background FFMIA and other financial management reform legislation have 

emphasized the importance of improving financial management across the 

federal government. Beginning in 1990, the Congress has passed a series of 

management reform legislation to improve the general and financial 

management of the federal government. As shown in figure 2, the 

combination of reforms ushered in by the (1) CFO Act of 1990, (2) 

Government Performance and Results Act of 1993,10 (3) Government 

Management Reform Act of 1994,11 (4) FFMIA, (5) Clinger-Cohen Act of 

1996,12 and (6) Accountability of Tax Dollars Act of 2002,13 if successfully 

implemented, provides a solid basis for improving accountability of 

government programs and operations as well as routinely producing 

valuable cost and operating performance information.

Figure 2 shows the three levels of the pyramid that result in the end goal, 

accountability and useful management information. The bottom level of 

the pyramid is the legislative framework that underpins the improvement 

of the general and financial management of the federal government. The 

second level shows the drivers that build on the legislative requirements 

and influence agency actions to meet these requirements. The three 

drivers are the (1) President’s Management Agenda (PMA), 

(2) congressional and other oversight, and (3) the Joint Financial 

Management Improvement Program (JFMIP). The third level of the 

pyramid represents the key success factors for accountability and 

meaningful management information—integrating core and feeder 

financial systems, producing reliable financial and performance data for 

reporting, and ensuring effective internal control. The result of these three 

levels, as shown at the top of the pyramid, is accountability and meaningful 

management information needed to assess and improve the government’s 

effectiveness, financial condition, and operating performance.

10Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993).

11Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994).

12Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996).

13The Accountability of Tax Dollars Act of 2002 extends the requirement to prepare and 

submit audited financial statements to most executive agencies not subject to the CFO Act 

unless they are exempted by OMB. However, these agencies are not required to have 

systems that are compliant with FFMIA. 
Page 9 GAO-05-20 FFMIA FY 2003 Results

Figure 2: Pyramid to Accountability and Useful Management Information

Building on the foundation laid by the CFO Act, FFMIA reflects the need 

for agencies to have systems that can generate reliable, useful, and timely 

information with which to make fully informed decisions and to ensure 

accountability on an ongoing basis. FFMIA requires the departments and 

agencies covered by the CFO Act to implement and maintain financial 

management systems that comply substantially with (1) federal financial 

management systems requirements, (2) applicable federal accounting 

standards,14 and (3) the SGL15 at the transaction level. FFMIA also requires 

auditors to state in their CFO Act financial statement audit reports whether 

the agencies’ financial management systems substantially comply with 

FFMIA’s systems requirements.

14The American Institute of Certified Public Accountants recognizes the federal accounting 

standards promulgated by the Federal Accounting Standards Advisory Board as generally 

accepted accounting principles. For a further description of federal accounting standards, 

see app. I.

15The SGL provides a standard chart of accounts and standardized transactions that 

agencies are to use in all their financial systems. 

Source: GAO.

Accountability

and useful

management

information

End goal

Key success

factors

Integrated

systems

Reliable

financial and

performance data

for reporting

Effective

internal

control

PMA

Drivers

CFO

Act

Legislative

framework

Government

Management

Reform Act

Accountability

of Tax Dollars

Act of 2002

Congressional and

other oversight JFMIP

FFMIA

Government

Performance

and Results Act

Clinger-Cohen

Act
Page 10 GAO-05-20 FFMIA FY 2003 Results

President’s Management 

Agenda Supported by 

FFMIA Initiatives

The PMA, announced in the summer of 2001, is a plan for improving the 

management and performance of the federal government. It targets the 

most apparent deficiencies, where the opportunity to improve performance 

is the greatest. The modernization of agency financial management 

systems, as reflected in FFMIA, is critical to the success of all five PMA 

initiatives.16 Although FFMIA implementation relates directly to the 

improved financial performance initiative, development and maintenance 

of FFMIA-compliant systems will also affect the implementation of the 

other initiatives. 

A key element of PMA’s performance budgeting initiative is the 

Performance and Assessment Rating Tool (PART). The development of 

PART represents a step toward a more structured involvement of program 

and performance analysis in the budget. It is a systematic method of 

assessing the performance of program activities across the federal 

government, consisting of a set of general questions on (1) program 

purpose and design, (2) strategic planning, (3) program management, and 

(4) program results. It also includes a set of more specific questions, which 

vary according to the type of delivery mechanism or approach an individual 

program uses, and calls for timely, reliable data to perform those 

assessments. 

Congressional Oversight 

Helps Provide 

Accountability

The leadership demonstrated by the Congress has been an important 

catalyst to reforming financial management in the federal government. As 

previously discussed, the legislative framework provided by the CFO Act 

and FFMIA, among others, produces a solid foundation to stimulate change 

needed to achieve sound financial systems management. For example, in 

November 2002, the Congress enacted the Accountability of Tax Dollars 

Act to extend the financial statements audit requirements of the CFO Act to 

additional federal agencies. Further, the Congress is currently 

contemplating adding DHS to the list of CFO Act agencies and requiring 

DHS to obtain an audit opinion on its internal controls. There is value in 

sustained congressional interest in these issues, as demonstrated by 

hearings on federal financial management and reform held over the past 

several years. It will be key that the appropriations, budget, authorizing, 

16These five crosscutting initiatives are (1) improved financial performance, (2) strategic 

human capital management, (3) competitive sourcing, (4) expanded electronic government, 

and (5) budget and performance integration. 
Page 11 GAO-05-20 FFMIA FY 2003 Results

and oversight committees hold agency top management accountable for 

resolving these problems and that they support improvement efforts. The 

continued attention by the Congress to these issues will be critical to 

sustaining momentum for financial management reform. 

JFMIP Works to Improve 

Federal Financial 

Management

JFMIP is a joint and cooperative undertaking of the U.S. Department of the 

Treasury, GAO, OMB, and the Office of Personnel Management (OPM), 

working in cooperation to improve financial management practices in the 

federal government.17 Leadership is provided by the four principals of 

JFMIP—the Comptroller General of the United States, the Secretary of the 

Treasury, and the Directors of OMB and OPM. Since August 2001, the 

JFMIP principals have met regularly to discuss financial management 

issues, such as the acceleration of financial statement reporting. The 

Program Management Office (PMO), managed by the Executive Director of 

the JFMIP using funds provided by the CFO Council agencies, is 

responsible for the testing and certification of commercial off-the-shelf 

(COTS) core financial systems for use by federal agencies and coordinating 

the development and publication of functional requirements for financial 

management systems.18 OMB Circular No. A-127, Financial Management 

Systems, requires agencies to purchase only COTS packages sold by 

vendors whose core financial systems software has been certified by PMO. 

As shown in table 1, in 2003 and 2004, PMO certified that six core financial 

software packages met the core financial systems requirements.

17The authority for the creation of JFMIP is statutorily based. See the Budget and 

Accounting Procedures Act of 1950, now codified at 31 U.S.C. 3511(d). 

18See app. III for the systems requirements documents issued to date.
Page 12 GAO-05-20 FFMIA FY 2003 Results

Table 1: PMO-Certified Core Financial Systems 

Source: PMO.

PMO assesses COTS packages for conformity with the minimum level or 

“floor” of system requirements. Therefore agencies should be aware that 

simply implementing a core financial system that has been certified by 

PMO does not ensure that these agencies will have financial systems that 

are compliant with FFMIA or provide reliable, useful, and timely data for 

day-to-day management. Factors that affect the FFMIA compliance and the 

effectiveness of an implemented COTS core financial system include how 

the software package has been configured to work in the agency’s 

environment, whether any customization is made to the software, the 

success of converting data from legacy systems to new systems, and the 

quality of transaction data in the feeder systems. 

Guidance for FFMIA 

Issued by OMB 

OMB sets governmentwide financial management policies and 

requirements and has issued two sources of guidance related to FFMIA. 

First, OMB Bulletin No. 01-02, Audit Requirements for Federal Financial 

Statements, dated October 16, 2000, prescribes specific language auditors 

should use when reporting on an agency system’s substantial compliance 

with FFMIA. Specifically, this guidance calls for auditors to provide 

negative assurance when reporting on an agency system’s FFMIA 

compliance. Second, in OMB Memorandum, Revised Implementation 

Guidance for the Federal Financial Management Improvement Act (Jan. 

4, 2001), OMB provides guidance for agencies and auditors to use in 

assessing substantial compliance. The guidance describes the factors that 

should be considered in determining whether an agency’s systems 

Vendor name Product Version Effective Date

SAP Public 

Services, Inc. (SAP)

mySAP ERP with Enterprise Add-on 

for Public Sector and Extension Set

v4.7 6/10/2003

American 

Management 

Systems, Inc. (AMS)

Momentum Financials v5.0 6/12/2003

Digital Systems 

Group, Inc.

Integrated Financial Management 

Information Systems (IFMIS)

v6.0 6/25/2003

Oracle Corporation Oracle E-Business Suite 11i v11i.9 9/10/2003

PeopleSoft, Inc. PeopleSoft Financial Management 

Solutions (FMS)

v8.8 2/10/2004

Savantage 

Solutions, Inc.

Altimate v3.0 3/16/2004
Page 13 GAO-05-20 FFMIA FY 2003 Results

substantially comply with FFMIA’s requirements. Further, the guidance 

provides examples of the types of indicators that should be used as a basis 

in assessing whether an agency’s systems are in substantial compliance 

with each of the three FFMIA requirements. Finally, the guidance 

discusses the corrective action plans, to be developed by agency heads, for 

bringing their systems into compliance with FFMIA. 

Financial Audit Manual

Section on FFMIA 

Developed by PCIE and 

GAO

We worked with representatives from the President’s Council on Integrity 

and Efficiency (PCIE) to revise the joint GAO/PCIE Financial Audit 

Manual19 (FAM) to include sections20 that provide specific procedures 

auditors should perform when assessing FFMIA compliance. These 

sections include detailed audit steps for testing agency systems’ substantial 

compliance with FFMIA. The FAM guidance on FFMIA assessments 

recognizes that while financial statement audits offer some assurance 

regarding FFMIA compliance, auditors should design and implement 

additional testing to satisfy FFMIA criteria. For example, in performing 

financial statement audits, auditors generally focus on the ability of the 

financial management systems to process and summarize financial 

information that flows into annual agency financial statements. In 

contrast, FFMIA requires auditors to assess whether an agency’s financial 

management systems comply with system requirements. To do this, 

auditors need to consider whether agency systems provide reliable, useful, 

and timely information for managing day-to-day operations so that agency 

managers would have the necessary information to measure performance 

on an ongoing basis rather than just at year-end.

Scope and 

Methodology

We reviewed the fiscal year 2003 financial statement audit reports for the 

23 CFO Act agencies to identify the auditors’ assessments of agency 

financial systems’ compliance and the problems that affect FFMIA 

compliance. We also reviewed the fiscal year 2003 financial statement 

audit report for DHS to identify any FFMIA-related issues. Our prior 

experience with these auditors and our review of their reports provided the 

basis to determine the sufficiency and relevancy of evidence provided in 

these documents. Based on the audit reports, we identified problems 

19GAO/PCIE, Financial Audit Manual, GAO-01-765G (Washington, D.C.: July 2004). 

20GAO-01-765G, sections 701, 701A, 701B, and 260.58-.60. 
Page 14 GAO-05-20 FFMIA FY 2003 Results

reported by the auditors that affect agency systems’ compliance with 

FFMIA. The problems identified in these reports are consistent with longstanding financial management weaknesses that we have reported based 

on our work at the Department of Agriculture, NASA, Treasury, and other 

agencies. However, we caution that the occurrence of problems in a 

particular category may be even greater than auditors’ reports of FFMIA 

noncompliance would suggest because auditors may not have included all 

problems in their reports. 

We also reviewed our previously issued reports and those by the inspectors 

general to identify the challenges federal agencies face when implementing 

new systems. Finally, we held discussions with OMB officials to obtain 

information about its current efforts to help agencies develop systems that 

will comply with FFMIA. 

We conducted our work from April through August 2004 in the Washington, 

D.C., area in accordance with U.S. generally accepted government auditing 

standards. We requested comments on a draft of this report from the 

Director of OMB or his designee. Comments from OMB are discussed in 

the “Agency Comments and Our Evaluation” section and reprinted in 

appendix VI. 

Continued Systems 

Weaknesses Impede 

Financial Management 

Accountability

While agencies are making some progress in producing auditable financial 

statements and addressing their financial management systems 

weaknesses, the vast majority of agency systems are still not substantially 

compliant with FFMIA’s requirements. Figure 3 summarizes auditors’ 

assessments of FFMIA compliance for fiscal years 2000 through 2003 and 

suggests that the instances of noncompliance with FFMIA’s three 

requirements have remained fairly constant. For fiscal year 2003, OIGs and 

their contract auditors reported that the systems of 17 of the 23 CFO Act 

agencies did not substantially comply with at least one of FFMIA’s three 

requirements—federal financial management systems requirements, 

applicable federal accounting standards, or the SGL at the transaction 

level.21 

In fiscal year 2002, auditors for five agencies (SSA, Energy, NSF, EPA, and 

GSA) provided negative assurance that the agencies’ financial systems 

21Of these 17 agencies, systems for 8 agencies were reported not to be in substantial 

compliance with all three FFMIA requirements. 
Page 15 GAO-05-20 FFMIA FY 2003 Results

were in compliance with FFMIA. In fiscal year 2003, the auditors at two 

additional agencies, Commerce and NRC, provided negative assurance that 

the systems at those agencies were in compliance with FFMIA, while 

auditors reported GSA’s systems to be noncompliant. 

At Commerce, the auditors were able to provide negative assurance due to 

the implementation of a new integrated financial management system, 

combined with improvements in general information technology controls. 

Auditors at NRC provided negative assurance due to a redesign of the 

agency’s cost accounting system and enhancement of the internal controls 

and operating procedures documentation. In contrast, for fiscal year 2003, 

GSA’s systems were found to be noncompliant by its auditors due to 

reconciliation issues related to a newly implemented system. Specifically, 

the auditors concluded that the systems GSA relied on during fiscal year 

2003 failed to perform timely reconciliations of accounts payable and 

undelivered orders, Fund Balance with Treasury, and accounts receivable, 

which represented a lack of substantial compliance with FFMIA. In total, 

for 6 of the 23 CFO Act agencies, the auditors provided negative assurance 

by stating that nothing came to their attention that would indicate the 

systems did not comply with FFMIA for fiscal year 2003. 
Page 16 GAO-05-20 FFMIA FY 2003 Results

Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 2000 through 2003

Note: Based on independent auditors’ reports for fiscal years 2000-2003, prepared by agency 

inspectors general and contract auditors.

While more CFO Act agencies have obtained clean or unqualified audit 

opinions on their financial statements, there is little evidence of marked 

improvements in agencies’ capacities to create the full range of information 

needed to manage day-to-day operations. The number of unqualified 

opinions has been increasing over the past 7 years, from 11 in fiscal year 

1997 to 20 for fiscal year 2003; but the number of agencies reported to have 

substantially noncompliant systems has remained relatively steady. While 

the increase in unqualified opinions is noteworthy, a more important 

measure of financial systems’ capability and reliability is that the number of 

agencies for which auditors provided negative assurance of FFMIA 

compliance has remained relatively constant throughout this same period. 

In our view, this has led to an expectation gap since, as more agencies 

receive clean opinions, expectations are raised that the government has 

sound financial management and can produce reliable, useful, and timely 

information on demand throughout the year, whereas FFMIA assessments 

offer a different perspective. 

17

19

18

13

14

12

9

15

11

10

8 8

0

4

8

12

16

20

2000 2001 2002 2003

Agencies not in compliance 

System requirements

Accounting standards

SGL

Source: GAO analysis.
Page 17 GAO-05-20 FFMIA FY 2003 Results

All CFO Act agencies issued their audited financial statements by the 

accelerated reporting deadline of February 1, 2004, for agency fiscal year 

2003 financial statements. However, the deadline for issuance of fiscal year 

2004 audited financial statements is November 15, 2004, just 45 days after 

the close of the fiscal year. Auditors at several of the CFO Act agencies 

reported that the agencies may not be able to produce auditable financial 

statements within the accelerated time frame for fiscal year 2004 without 

making fundamental changes to improve a number of their financial 

management practices.

DHS Is Not Required To 

Comply with FFMIA

DHS is not subject to the CFO Act and, consequently, is not required to 

comply with FFMIA. Accordingly, DHS’ auditors did not report on the 

department’s compliance with FFMIA in fiscal year 2003. However, the 

auditors identified and reported deficiencies that relate to the three FFMIA 

requirements.

Based on its budget, DHS is the largest entity in the federal government 

that is not subject to the CFO Act nor required to comply with FFMIA 

system requirements. Creating strong financial management at DHS is 

particularly challenging because most of the 22 entities brought together to 

form the department have their own financial management systems; 

processes; and in some cases, deficiencies. For example, five of the seven 

major agencies that transferred to DHS had 30 reportable conditions, 18 of 

which were considered material internal control weaknesses for fiscal year 

2002 and four of the major agencies—that had previously been subject to 

stand-alone audits—had financial management systems that were not in 

substantial compliance with FFMIA. Some progress has been made in 

addressing the internal control weaknesses it inherited from component 

agencies. Nine of the 30 inherited internal control weaknesses have been 

closed as of September 30, 2003. For DHS to develop a strong financial 

management infrastructure, it will need to address these and many other 

financial management issues. 

We fully support the objectives of the CFO Act to provide reliable financial 

information and improve financial management systems and controls and, 

as recently reported,22 we believe that it is critical that DHS be statutorily 

required to comply with important financial management reforms 

22GAO, Financial Management: Department of Homeland Security Faces Significant 

Financial Management Challenges, GAO-04-774 (Washington, D.C.: July 19, 2004).
Page 18 GAO-05-20 FFMIA FY 2003 Results

legislated in the CFO Act and FFMIA. Consideration is now being given by 

each house of Congress to adding DHS to the list of CFO Act agencies in 

the Department of Homeland Security Financial Accountability Act, H.R. 

4259 and S. 1567, 108th Congress.

FFMIA Compliance Findings 

Based on Negative Assurance

Auditors for six agencies (Commerce, Energy, EPA, NRC, NSF, and SSA) 

provided negative assurance that the agencies’ systems were in compliance 

with FFMIA in fiscal year 2003, and five agencies did so in fiscal year 2002. 

Auditors provide negative assurance when they include language stating 

that nothing came to their attention during the course of their planned 

procedures to indicate that these agencies’ financial management systems 

did not meet FFMIA requirements. If readers are not familiar with the 

concept of negative assurance, they may incorrectly assume that these 

systems have been fully tested by the auditors and that the agencies have 

achieved compliance. 

OMB’s current audit guidance23 calls for auditors to provide negative 

assurance when reporting whether an agency’s systems are in substantial 

compliance with FFMIA. To provide positive assurance of FFMIA 

compliance, auditors would need to perform more comprehensive audit 

procedures than those necessary to render an opinion for a financial 

statement audit. In performing financial statement audits, auditors 

generally focus on the capability of the financial management systems to 

process and summarize financial information that flows into financial 

statements. In contrast, FFMIA is much broader and requires auditors to 

assess whether an agency’s financial management systems substantially 

comply with systems requirements. To do this, auditors need to consider 

whether agency systems provide complete, accurate, and timely 

information for managing day-to-day operations. We believe that providing 

positive assurance of an agency’s financial management system would 

identify weaknesses and lead to systems improvements that result in 

enhancing the performance, productivity, and efficiency of federal financial 

management, which is a goal of the PMA. Therefore, as we discussed in 

prior reports,24 we reaffirm our prior recommendation that OMB require 

agency auditors to provide a statement of positive assurance when 

reporting an agency’s systems to be in substantial compliance with FFMIA. 

23OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements (Oct. 16, 

2000).

24GAO-02-29, GAO-03-31, and GAO-03-1062.
Page 19 GAO-05-20 FFMIA FY 2003 Results

OMB continues to support the requirement for negative assurance of 

FFMIA compliance due to cost-benefit concerns. While OMB agrees that 

testing should occur, and its guidance on FFMIA calls for it, OMB officials 

are concerned that the level of testing needed for positive assurance may 

be too time-consuming and costly. OMB officials stated that different, 

more coordinated approaches toward assessing an agency’s internal 

controls and FFMIA compliance might provide sufficient assurance on an 

agency’s systems. For example, in preparing the PMA scorecard 

assessments, OMB officials meet with agencies to discuss a number of 

financial management issues and have systems demonstrations. Agencies 

are asked to identify key business questions and related cost drivers. Then, 

the agencies must develop systems that can produce the information 

needed on those cost drivers to help management at all levels focus on 

results. OMB officials stated they believed the PMA scorecard framework 

offers an alternative route toward substantial compliance that is similar to 

that offered by positive assurance. In its written comments on a draft of 

this report (see app. VI) OMB stated that the processes used in evaluating 

agencies against the PMA standards can provide a corroborative 

mechanism in evaluating compliance with FFMIA. Our concern is that the 

information provided by this approach does not come under audit scrutiny 

and may not be reliable. For example, the PMA scorecard does not 

examine the nature and extent of adjustments that agencies make to their 

year-end financial statements. As long as extensive year-end adjustments 

are needed, there is no assurance that the financial information being 

provided by the systems is complete and accurate for day-to-day 

operations.

A joint CFO Council/PCIE group is also currently investigating how internal 

control reporting similar to that required by the Sarbanes-Oxley Act of 

200225 might be useful in the federal government. OMB officials told us that 

the results of this CFO Council/PCIE study might provide another method 

of assessing and reporting on internal control and FFMIA compliance. 

Auditor reporting on internal control is a critical component of monitoring 

25A final rule issued by the Securities and Exchange Commission that took effect in August 

2003 provides guidance for implementations of Sections 302, 404, and 906 of the SarbanesOxley Act of 2002 (Pub. L. No. 107-204, §§302, 404, 906 116 Stat. 745, 777, 789, 806 (July 30, 

2002)), which requires publicly traded companies to establish and maintain an adequate 

internal control structure and procedures for financial reporting and include in the annual 

report a statement of management’s responsibility for and assessment of the effectiveness 

of those controls and procedures in accordance with standards adopted by the Securities 

and Exchange Commission. 
Page 20 GAO-05-20 FFMIA FY 2003 Results

the effectiveness of an organization’s accountability, especially for large, 

complex, or challenged entities that use taxpayers’ dollars. Auditors can 

better serve their clients and other financial statement users and better 

protect the public interest by having a greater role in providing assurances 

of the effectiveness of internal control in deterring fraudulent financial 

reporting and protecting assets. Financial systems are an important 

element of an entity’s internal control over financial reporting. Although 

enhanced internal control reporting would not necessarily address the full 

capability of the financial management systems in place, such reporting 

would include reportable internal control weaknesses caused by financial 

systems problems. However, the full value of independent auditors’ 

assessments of FFMIA compliance will not be fully realized until auditors 

perform a sufficient level of audit work to be able to provide positive 

assurance that agencies are in compliance with FFMIA. When reporting an 

agency’s financial management systems to be in substantial compliance, 

positive assurance will provide users with confidence that the agency 

systems provide the reliable, useful, and timely information envisioned by 

the act. 

In addition, we also previously recommended26 that OMB explore clarifying 

the definition of “substantial compliance” to help ensure consistent 

application of the term. As we noted27 in our prior reports, auditors we 

interviewed had concerns about providing positive assurance in reporting 

on agency systems’ FFMIA compliance because of a need for clarification 

regarding the meaning of substantial compliance. Therefore, we also 

reaffirm this recommendation. In its comments, OMB stated that its 

growing experience assisting agencies in implementing the PMA 

performance standards will enable it to refine the existing FFMIA 

indicators associated with substantial compliance. Accordingly, OMB 

officials stated that they will consider our recommendation in any future 

policy and guidance updates. 

Reasons for Noncompliance Based on our review of the fiscal year 2003 audit reports for the 17 agencies 

reported to have systems not in substantial compliance with one or more of 

FFMIA’s three requirements, we identified six primary reasons cited by the 

auditors for agency systems not being compliant. The weaknesses 

26GAO-02-29.

27GAO-02-29 and GAO-03-31.
Page 21 GAO-05-20 FFMIA FY 2003 Results

reported by the auditors ranged from serious, pervasive systems problems 

to less serious problems that may affect one aspect of an agency’s 

accounting operation:

• nonintegrated financial management systems,

• inadequate reconciliation procedures,

• lack of accurate and timely recording of financial information,

• noncompliance with the SGL,

• lack of adherence to federal accounting standards, and

• weak security controls over information systems.

Figure 4 shows the relative frequency of these problems at the 17 agencies 

reported to have noncompliant systems and the problems relevant to 

FFMIA that were reported by their auditors. The same six types of 

problems were cited by auditors in their fiscal years 2000, 2001, and 2002 

audit reports, although the auditors may not have reported these problems 

as specific reasons for their systems’ lack of substantial compliance with 

FFMIA. In addition, we caution that the occurrence of problems in a 

particular category may be even greater than auditors’ reports of FFMIA 

noncompliance would suggest because auditors may not have identified all 

problems in their reviews. 
Page 22 GAO-05-20 FFMIA FY 2003 Results

Figure 4: Problems Reported by Auditors for Fiscal Years 2000 through 2003 

Note: Based on independent auditors’ reports for fiscal years 2000-2003, prepared by agency 

inspectors general and contract auditors.

Nonintegrated Financial 

Management Systems

The CFO Act calls for agencies to develop and maintain an integrated 

accounting and financial management system28 that complies with federal 

systems requirements and provides for (1) complete, reliable, consistent, 

and timely information that is responsive to the financial information needs 

of the agency and facilitates the systematic measurement of performance; 

(2) the development and reporting of cost management information; and 

13

16

14

8

12

19

14

13

14

15

8

14

20

13

11 11

10

11 11

17 17

9

13

19

0

4

8

12

16

20

24

Nonintegrated

financial 

management

systems

Inadequate

reconciliation

procedures

Lack of accurate 

and timely 

recording

Noncompliance 

with the SGL

Lack of adherence 

to federal accounting 

standards

Weak security 

over information 

systems

Agencies

Fiscal year 2000

Fiscal year 2001

Fiscal year 2002

Fiscal year 2003

Source: GAO analysis.

28Federal 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 control over data entry, transaction processing, and reporting, and (4) a 

system design that eliminates unnecessary duplication of transaction entry. 
Page 23 GAO-05-20 FFMIA FY 2003 Results

(3) the integration of accounting, budgeting, and program information. 

OMB Circular No. A-127, Financial Management Systems, requires each 

agency to establish and maintain a single integrated financial management 

system that conforms to functional requirements published by PMO.

Agencies that do not have integrated financial management systems 

typically must expend major effort and resources, including in some cases 

hiring external consultants, to develop information that their systems 

should be able to provide on a daily or recurring basis. Agencies with 

nonintegrated financial systems are also more likely to be required to 

devote more resources to collecting information than those with integrated 

systems. In addition, opportunities for errors are increased when agencies’ 

systems are not integrated. 

Auditors frequently mentioned the lack of modern, integrated financial 

management systems in their fiscal year 2003 audit reports. As shown in 

figure 4, auditors for 11 of the 17 agencies with noncompliant systems 

reported this to be a problem, compared with 13 of the 19 agencies 

reported with noncompliant systems in fiscal year 2002.29 For example, 

auditors determined that the Department of State’s financial and 

accounting system, as of September 30, 2003, was inadequate, preventing 

the department from routinely issuing timely financial statements and 

increasing the risk of materially misstating financial information. The 

principal areas of weakness included (1) certain elements, including, but 

not limited to, personal property, capital leases, and certain accounts 

payable, were developed from sources outside the general ledger and 

(2) several different systems were used for the management of grants and 

other types of federal awards. These systems for grants management and 

other federal awards lacked standard data classifications and were not 

integrated with the department’s centralized financial management system.

In another case, as auditor for Treasury’s Internal Revenue Service (IRS),30

we reported that IRS’ general ledger system consists of two independent 

29In our October 2003 FFMIA report, we stated that auditors had discussed problems 

relating to nonintegrated financial management systems at 12 agencies. As part of our 

analysis of the most recent reports, it became apparent that the auditors for 1 additional 

agency concluded that nonintegrated systems were a factor contributing to its financial 

reporting difficulties for fiscal year 2002. Therefore, the revised number of agencies with 

nonintegrated systems for fiscal year 2002 is 13. 

30GAO, Financial Audit: IRS’s Fiscal Years 2003 and 2002 Financial Statements, GAO-04-

126 (Washington, D.C.: Nov. 13, 2003).
Page 24 GAO-05-20 FFMIA FY 2003 Results

general ledgers that are not integrated with each other or with their 

supporting records for material balances. Further, the information 

contained in the general ledgers was not supported by adequate audit trails 

for federal tax revenue, federal tax refunds, taxes receivable, or property 

and equipment. IRS’ use of two separate general ledgers to account for its 

tax collection activities and the costs of conducting those activities, 

respectively, greatly complicates efforts to measure the cost of IRS’ tax 

collection efforts. The use of multiple ledgers also causes difficulties in the 

production of the reliable, useful, and timely financial and performance 

information that IRS needs for decision making on an ongoing basis.

Inadequate Reconciliation 

Procedures

A reconciliation process, whether manual or automated, is a necessary and 

valuable part of a sound financial management system. The less integrated 

the financial management system, the greater the need for adequate 

reconciliations because data may be accumulated from a number of 

different sources. Reconciliations are needed to ensure that data have 

been recorded properly between the various systems and manual records. 

The Comptroller General’s Standards for Internal Control in the Federal 

Government31 highlights reconciliation as a key control activity. 

As shown in figure 4, auditors for 11 of the 17 agencies with noncompliant 

systems in fiscal year 2003 reported that the agencies had reconciliation 

problems, compared with 11 of the 19 agencies reported with 

noncompliant systems in fiscal year 2002. These reconciliation problems 

included difficulty in reconciling their fund balance with Treasury 

accounts32 with Treasury’s records. Treasury policy requires agencies to 

reconcile their accounting records with Treasury records on a monthly 

basis (comparable to individuals reconciling their personal checkbooks to 

their monthly bank statements). 

For fiscal year 2003, NASA’s auditors reported a lack of effective internal 

controls surrounding its fund balance with Treasury reconciliations. Based 

on a review of NASA headquarters’ fund balance with Treasury 

reconciliations as of September 30, 2003, auditors reported an agencywide 

31GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).

32Agencies record their budget spending authorizations in their fund balance with Treasury 

accounts. Agencies increase or decrease these accounts as they collect or disburse funds. 
Page 25 GAO-05-20 FFMIA FY 2003 Results

difference of approximately $43 million, net, between NASA’s general 

ledger and Treasury’s reported balance. NASA did not provide sufficient 

documentary evidence to explain these differences. Further, NASA made 

approximately 20 additional adjustments outside of its financial 

management system, which indicated the difference between its fund 

balance with Treasury balance and Treasury’s reported balance was 

significantly greater than disclosed in its year-end reconciliations. In total, 

NASA recorded adjustments of approximately $2 billion, net, to decrease 

its fund balance with Treasury balance in order to agree to Treasury’s 

reported balance as of September 30, 2003. NASA was unable to provide 

the auditor documentation to explain the reasons for such a large dollar 

amount of reconciliations.

Lack of Accurate and Timely 

Recording of Financial 

Information

As shown in figure 4, auditors for 15 of the 17 agencies with noncompliant 

systems reported the lack of accurate and timely recording of financial 

information as a problem for fiscal year 2003, compared with 17 of the 19 

agencies reported with noncompliant systems in fiscal year 2002. Accurate 

and timely recording of financial information is essential for successful 

financial management. Timely recording of transactions facilitates 

accurate reporting in agencies’ financial reports and other management 

reports used to guide managerial decision making. In addition, having 

systems that record information in a timely and accurate manner is critical 

for key governmentwide initiatives, such as integrating budget and 

performance information. 

In contrast, untimely recording of transactions during the fiscal year can 

result in agencies making substantial efforts at fiscal year-end to perform 

extensive manual financial statement preparation efforts that are 

susceptible to error and increase the risk of misstatements. For example, 

auditors at the Department of the Interior reported in fiscal year 2003 that 

the department (1) needed to improve controls over property, plant, and 

equipment in order to prepare financial reports in a timely and reliable 

manner; (2) capitalized assets that were transferred from other agencies at 

incorrect amounts and also capitalized assets in the current year that had 

been accidentally expensed in prior years; and (3) did not ensure that 

journal vouchers were properly recorded by failing to include proper 

general ledger accounts. As a result, the department recorded over 180 

adjustments after issuing the final year-end trial balance, requiring that 

significant time and resources be dedicated to making manual adjustments.
Page 26 GAO-05-20 FFMIA FY 2003 Results

Noncompliance with the 

SGL

As shown in figure 4, auditors for 10 of the 17 agencies reported to have 

noncompliant systems for fiscal year 2003 stated that the agencies’ systems 

did not comply with SGL requirements for fiscal year 2003, as compared 

with 9 of the 19 agencies reported with noncompliant systems in fiscal year 

2002. Implementing the SGL at the transaction level is one of the specific 

requirements of FFMIA. Using the SGL promotes consistency in financial 

transaction processing and reporting by providing a uniform chart of 

accounts and pro forma transactions. The SGL also provides a basis for 

comparison at the agency and governmentwide levels. The defined 

accounts and pro forma transactions standardize the accumulation of 

agency financial information as well as enhance financial control and 

support financial statement preparation and other external reporting. By 

not implementing the SGL, agencies may experience difficulties in 

providing consistent financial information across their components and 

functions. 

Auditors for HHS reported that some of its systems were not designed to 

apply the SGL at the transaction level. For example, the auditors stated 

that the National Institutes of Health (NIH) recorded 1,900 nonstandard 

accounting entries totaling $14.2 billion during the year. According to the 

auditors, these nonstandard entries were needed to properly adjust 

account balances, including inventory, accrued leave, personal property, 

receipt of donations, and other revenues. Moreover, NIH developed a 

process to record at year-end the effect of current-year, day-to-day entries 

in its budgetary and expended appropriations accounts. In their report, the 

auditors stated that the use of nonstandard accounting entries increased 

the risks of (1) bypassing accounting controls and (2) errors. To address 

these issues, during fiscal year 2003, NIH reconfigured its transaction codes 

to be SGL compliant and on October 1, 2003, implemented a new general 

ledger system as part of the NIH Business and Research Support System 

(NBRSS) initiative. NBRSS is expected to be fully implemented in 2006.

Furthermore, approximately 2,300 nonstandard accounting entries with an 

absolute value of about $41 billion were recorded in HHS’ Program Support 
Page 27 GAO-05-20 FFMIA FY 2003 Results

Center’s (PSC)33 CORE Accounting system34 to compensate for 

noncompliance with the SGL. These nonstandard accounting entries were 

recorded to correct for misstatements and recorded balances, and to 

record reclassifications.

Lack of Adherence to 

Federal Accounting 

Standards

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

systems account for transactions in accordance with federal accounting 

standards. Agencies face significant challenges implementing these 

standards. As shown in figure 4, auditors for 11 of the 17 agencies with 

noncompliant systems for fiscal year 2003 reported that these agencies had 

problems complying with one or more federal accounting standards, 

compared with 13 of the 19 agencies with noncompliant systems in fiscal 

year 2002. 

Auditors reported that agencies are having problems implementing 

standards that have been in effect for some time—such as Statement of 

Federal Financial Accounting Standards (SFFAS) No. 1, Accounting for 

Selected Assets and Liabilities—as well as standards that have been 

promulgated in the last few years—such as SFFAS No. 21, Reporting 

Corrections of Errors and Changes in Accounting Principles. For 

example, in fiscal year 2003, auditors for the U.S. Agency for International 

Development (USAID) found that the agency’s Accrual Reporting System 

(ARS)35 was not in compliance with SFFAS No. 1, paragraph 77. That 

standard requires that when an entity accepts goods (or services), it should 

recognize a liability for the unpaid amount of these goods or services. If 

related invoices are not available when the financial statements are 

prepared, amounts owed should be estimated. USAID uses ARS to develop 

quarterly estimates of accrued expenses recorded against individual 

contract and grant awards. However, auditors discovered that ARS’ 

financial information was not reliable and, since the system-generated 

estimates were based on the financial information contained in the system, 

33PSC is an administrative office that provides program support services to HHS 

components and other federal agencies through fee-for-service. PSC’s major business lines 

include financial management and administrative operations. 

34The PSC CORE Accounting system is the nucleus of PSC’s accounting operations and 

accepts and processes data supplied by 8 of the 12 HHS agencies as well as from Payroll, 

Travel, and Payment Management Systems.

35USAID’s ARS obtains obligation and contract data and uses this information to calculate 

estimated quarterly expenses against individual contracts, grants, or obligation line items.
Page 28 GAO-05-20 FFMIA FY 2003 Results

USAID had no assurance that the resulting estimates were reliable or 

supported by adequate accrual methodology. Further, simply eliminating 

the system-generated estimates might cause the agency to materially 

understate its accounts payable. Consequently, as a result of revised ARS 

estimates proposed by the OIG, USAID reduced its year-end accrued 

expenses and accounts payable by $244 million to more accurately reflect 

the activity in accounts affected by accruals.

Weak Security Controls over 

Information Systems

Information security weaknesses are a major concern for federal agencies 

and the general public and are one of the frequently cited reasons for 

noncompliance with FFMIA. These control weaknesses place vast 

amounts of government 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. Accordingly, we have considered 

information security to be a governmentwide high-risk area since 1997.36 

The Congress and the executive branch have taken action to address the 

risks associated with persistent information security weaknesses. The 

Federal Information Security Management Act of 2002 (FISMA)37 provides 

the overall framework for ensuring the effectiveness of information 

security controls that support federal operations and assets and requires 

agencies and OMB to report annually to the Congress on their information 

security programs. As we testified in March 2004,38 fiscal year 2003 agency 

reporting required by FISMA showed apparent progress in implementing 

FISMA’s information security requirements, but most agencies still had not 

reached the level of performance that demonstrates they have 

implemented the agencywide information security program mandated by 

the act. Only 6 agencies reported that they had authorized 90 to 100 

percent of their systems, and 11 agencies reported that they had authorized 

less than half of their systems. While OMB monitors agency performance 

by requiring agencies to provide quarterly updates on this and other key 

performance measures, the fiscal year 2004 annual reports that agencies 

must submit to the Congress are due to OMB by October 6, 2004, and 

36GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003).

37Pub. L. 107-347, title III, §301, 116 Stat. 2899, 2946-2961 (December 17, 2002).

38GAO, Information Security: Continued Efforts Needed to Sustain Progress in 

Implementing Statutory Requirements, GAO-04-483T (Washington, D.C.: Mar. 16, 2004). 
Page 29 GAO-05-20 FFMIA FY 2003 Results

should provide updated information on agency progress in implementing 

FISMA’s information security requirements. 

As shown in figure 4, auditors for all 17 of the 17 agencies with 

noncompliant systems reported security weaknesses in information 

systems to be a problem, compared with 19 of the 19 agencies reported 

with noncompliant systems in fiscal year 2002. 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 

system. 

As a case in point, in fiscal year 2003, the auditors for the Department of 

Education noted that the department needs improvement in seven key 

security control areas. These seven areas are (1) consistently updating 

application versions, virus/data protection packages, and security 

packages; (2) testing mission-critical systems for platform and database 

level vulnerabilities; (3) enforcing the rule requiring complex passwords 

across the enterprise; (4) deploying network and host based intrusion 

detection systems to provide alerts of intrusions and malicious internal 

activity; (5) implementing firewall rules to logically segregate database 

servers containing sensitive data from servers within the Web-hosting 

environment; (6) implementing access controls to protect mission-critical 

systems from certain internal networks; and (7) correcting security 

weaknesses previously identified at contractor facilities. 

Agencies Struggle to 

Implement New 

Financial Systems

In an effort to address problems such as nonintegrated systems, inadequate 

reconciliations, and lack of compliance with the SGL, a number of agencies 

have efforts under way to implement new financial management systems or 

to upgrade existing systems. Agencies anticipate that the new systems will 

provide reliable, useful, and timely data to support managerial decision 

making and assist taxpayer and congressional oversight. However, 

implementing and upgrading systems bring new risks. Organizations that 

follow and effectively implement accepted best practices in systems 

development and implementation (commonly referred to as disciplined 

processes) can reduce these risks to acceptable levels. However, our work 

at DOD, HHS, and NASA has shown that agencies face significant problems 

in implementing financial management systems and are not following the 

necessary disciplined processes for efficient and effective implementation 

of such systems. Further, VA recently halted its pilot implementation of its 
Page 30 GAO-05-20 FFMIA FY 2003 Results

new core financial system for which $249 million had been invested. The 

VA OIG reported that the contracting and monitoring of the VA project was 

not adequate, and the pilot deployment of the system encountered multiple 

problems. The problems the VA OIG cited were similar to those we noted 

at DOD, HHS, and NASA. As the federal government moves forward with 

ambitious modernization efforts to identify opportunities to eliminate 

redundant systems and enhance information accuracy and availability, 

adherence to these disciplined processes will be a crucial element to 

reduce risks to acceptable levels.

Most Agencies Are Implementing 

New Financial Systems 

Throughout the government, agencies have worked diligently to minimize 

financial management weaknesses by implementing or upgrading current 

financial systems. As we previously reported,39 17 CFO Act agencies 

advised us that as of September 2002 they were planning to or were in the 

process of implementing new core financial systems. Eleven of these 17 

CFO Act agencies had chosen software packages certified by PMO, 40 while 

the remaining 6 agencies had at that time yet to arrive at the software 

selection phase of their acquisition processes. Target implementation 

dates ranged from fiscal years 2003 to 2008 for 16 of the 17 agencies. DOD 

had not yet determined its implementation date. Moreover, JFMIP recently 

surveyed federal agencies about their plans to purchase core financial 

system and feeder system software between fiscal years 2005 and 2009. 

Survey responses indicated that 7 of the 23 CFO Act agencies and DHS plan 

to purchase core financial software. Additionally, 13 agencies and DHS 

have plans to purchase feeder system software between fiscal years 2005 

and 2009. Thus, the majority of the CFO Act agencies and DHS were either 

implementing or planning to purchase core financial or feeder system 

software. 

An agency’s implementation of a certified core financial system does not 

guarantee that the financial system is FFMIA compliant. Two major factors 

affecting FFMIA compliance that agencies must consider are (1) the 

integration of the core financial system with the agency’s administrative 

and programmatic systems, especially with regard to the completeness and 

39GAO-03-1062.

40The PMO, which is managed by JFMIP’s Executive Director, with funds provided by the 

CFO Council agencies, tests vendor COTS packages and certifies that they meet certain 

financial management system requirements for core financial systems.
Page 31 GAO-05-20 FFMIA FY 2003 Results

validity of system data, and (2) the existence of modifications or 

customizations to the certified core financial system software.

As indicated in our prior report,41 some agencies stated in their 

performance and accountability assessments that complete 

implementation of new core financial systems will also address their 

systems’ substantial noncompliance with FFMIA. However, as we 

previously discussed, implementing a new core financial system may not 

eliminate all of an agency’s financial management weaknesses. Agencies 

must consider various problems that extend beyond their core financial 

systems. Despite this realization, the implementation of agencywide core 

financial systems is a solid step toward successful systems performance.

Agencies Are Not Following 

Disciplined Processes

Implementing new financial management systems provides the 

groundwork for improved financial management, including providing 

financial managers with more timely information for better informed 

financial management decisions, and will help meet OMB’s accelerated 

financial reporting deadline. However, with implementation comes risk. 

Organizations that follow and effectively implement accepted best 

practices in systems development and implementation (commonly referred 

to as disciplined processes) can reduce these risks to acceptable levels. 

Our work at DOD, HHS, and NASA has shown that agencies face significant 

problems in implementing financial management systems and are not 

following the necessary disciplined processes for efficient and effective 

implementation of financial management systems. VA recently halted 

implementation of its new core financial system, due in part to reported 

concerns about the inadequate contracting and monitoring of the project 

and multiple problems with the pilot deployment of the system. 

Disciplined processes have been shown to mitigate some of the risks 

associated with software development and acquisition efforts to acceptable 

levels. The term “acceptable levels” acknowledges that any systems 

acquisition effort has risks and will suffer the risk of not achieving the 

intended results (performance) within the established resources (costs) on 

schedule. However, effective implementation of the disciplined processes 

reduces these risks and helps prevent any actual problems from having any 

41GAO-03-1062.
Page 32 GAO-05-20 FFMIA FY 2003 Results

significant adverse impact on achieving the performance, cost, and 

schedule of the project. 

Although a standard set of practices that will guarantee success does not 

exist, several organizations, such as the Software Engineering Institute 

(SEI)42 and the Institute of Electrical and Electronic Engineers (IEEE),43 as 

well as individual experts have identified and developed the types of 

policies, procedures, and practices that have been demonstrated to reduce 

development time and enhance effectiveness. The key to having a 

disciplined system development effort is to have disciplined processes in 

several areas, including the following:

• Requirements management. Requirements are the specifications that 

system developers and program managers use to design, develop, and 

acquire a system.

• Testing. Testing is the process of executing a program with the intent 

of finding errors. Testing is a critical process that improves an entity’s 

confidence that the system will satisfy the requirements of the end user 

and operate as intended. 

• Project planning and oversight. Project planning is the process used 

to establish reasonable plans for carrying out and managing the 

software project. It includes estimating resources needed for the work 

to be performed, establishing commitments, and defining the work plan.

• Risk management. Risk management is a set of activities for 

identifying, analyzing, planning, tracking, and controlling risks. Risk 

management starts with identifying the risks before they can become 

problems.

Organizations that do not effectively implement the disciplined processes 

lose the productive benefits of these processes as a project moves through 

its development and implementation and are forced to implement them 

later when it takes more time and they are less effective. A major 

42SEI is a federally funded research and development center operated by Carnegie Mellon 

University and sponsored by DOD. The SEI objective is to provide leadership in software 

engineering and in the transition of new software engineering technology into practice.

43IEEE develops standards for a broad range of global industries, including the information 

technology and information assurance industries.
Page 33 GAO-05-20 FFMIA FY 2003 Results

consumer of project resources in undisciplined efforts is rework. Rework 

occurs when the original work has defects or is no longer needed because 

of changes in project direction. Disciplined organizations focus their 

efforts on reducing the amount of rework because it is expensive. Studies 

have shown that correcting a defect during the testing phase costs 

anywhere from 10 to 100 times the cost of correcting it during the design or 

requirements phase.44 Projects that are unable to adopt disciplined 

processes successfully will eventually only be spending their efforts on 

rework and the associated processes that are needed rather than 

productive work. In other words, the project may find itself continually 

reworking items.

We found in our review of three agencies’ implementation of new financial 

management systems that these agencies are not following the disciplined 

processes that are necessary to reduce the risks to acceptable levels. In 

our May 2004 report,45 we reported that long-standing problems continue at 

DOD despite the significant investments made in DOD business systems46

each year. GAO’s two case study examples of logistics systems 

modernization efforts, Business Systems Modernization (BSM) at the 

Defense Logistics Agency (DLA) and the Army’s Logistics Modernization 

Program (LMP), found that disciplined processes were not implemented. 

We also reported in September 200447 that HHS had not followed key 

disciplined processes and is at risk of implementing a new financial 

management system that will not fully meet the needs of its users. Further, 

in 2003 and 2004 we issued five reports and testified48 about the 

considerable challenges facing NASA’s implementation of a new financial 

management program. NASA is on its third attempt in 12 years to 

modernize its financial management process and systems and has spent 

about $180 million on its two prior failed efforts.

44Steve McConnell, Rapid Development: Taming Wild Software Schedules (Redmond, 

Wash.: Microsoft Press, 1996).

45GAO-04-615. 

46Business systems include those that are used to support civilian and military personnel, 

finance, logistics, procurement, and transportation.

47GAO-04-1008.

48GAO-03-507, GAO-04-43, GAO-04-118, GAO-04-151, GAO-04-255, and GAO-04-754T. 
Page 34 GAO-05-20 FFMIA FY 2003 Results

Department of Defense DOD reported in April 2003 that its business systems environment 

consisted of 2,274 systems. DOD requested approximately $19 billion for 

fiscal year 2004 to operate, maintain, and modernize its reported 2,274 

business systems. More recently, DOD stated that its inventory of business 

systems was over 4,000 and more systems are expected to be identified. 

Despite its substantial investment over many years, DOD’s business 

systems remain fundamentally flawed; unable to provide timely, reliable 

information; and leave DOD vulnerable to fraud, waste, and abuse. The 

duplication and stovepiped nature of DOD’s systems environment is 

illustrated by the numerous systems it has in the same functional areas, 

such as over 450 personnel systems and 200 inventory systems. These 

systems are not integrated and thus have multiple points of data entry, 

which can result in data integrity problems.

Two of the business system modernization efforts DOD has undertaken to 

address some of its inventory problems are DLA’s BSM and the Army’s LMP. 

BSM and LMP incorporate part of the inventory management portion of the 

COTS software package used by both DLA and the Army. In November 

1999, DLA initiated an effort to replace two of its materiel management 

systems with BSM. BSM is intended to transform how DLA conducts its 

operations in five core business processes: order fulfillment, demand and 

supply planning, procurement, technical/quality assurance, and financial 

management. In February 1998, the Army began its effort to replace its two 

material management systems with LMP. LMP is intended to transform the 

U.S. Army Materiel Command’s logistic operations in six core processes: 

order fulfillment, demand and supply planning, procurement, asset 

management, materiel maintenance, and financial management.

Our May 2004 report49 of DOD’s business system modernization found 

numerous problems with both projects, BSM and LMP, including such 

issues as failure to follow necessary disciplined processes, lack of financial 

system integration, and system deployment schedule slippage. We found 

that DLA’s and Army’s program officials did not effectively implement the 

disciplined processes associated with requirements management and 

testing in developing and implementing their systems. For almost all of the 

requirements we analyzed, we found that the forward and backward 

traceability was not maintained. Traceability allows the user to follow the 

life of the requirement both forward and backward through the DLA and 

49 GAO-04-615.
Page 35 GAO-05-20 FFMIA FY 2003 Results

Army approaches and management plans and is critical to understanding 

the parentage, interconnections, and dependencies among the individual 

requirements. Testing, the process of executing the program with the 

intent of finding errors, was not effectively implemented for BSM or LMP. 

DLA and the Army, therefore, did not achieve the important goal of 

reducing the risk that BSM and LMP would not operate as intended. 

Although DLA and the Army have asserted that BSM and LMP, respectively, 

are compliant with the requirements of FFMIA, we have concerns. 

In the case of LMP, we found that the Army relied upon PMO testing for 147 

requirements because PMO had validated these requirements when it 

tested the vendor’s commercial software used for LMP during fiscal year 

1999. PMO testing should not be considered a substitute for individual 

system testing of the actual data that will be used by the entity. Further, 

PMO’s tests of software do not address entity-specific integrated tests of 

end-to-end transactions or systems interfaces. Because the Army had to 

make modifications to the basic commercial software package to 

accommodate some of its business operations, the Army cannot be 

assured, without retesting, that these 147 requirements will produce the 

intended results. In the case of BSM, for one requirement the contractor 

stated that “a sample of transactions were reviewed, [and] it appears that 

BSM properly records transactions consistent with the SGL posting rules.” 

However, we found no indication that this requirement was tested, and 

therefore, we cannot conclude whether BSM has the capability to meet this 

requirement. Without adequate documentation to support testing of the 

FFMIA requirements, it is questionable whether either system is 

substantially compliant with FFMIA.

Additionally, we found that the system interfaces were not fully tested for 

BSM and LMP and when they became operational, it became clear that the 

system interfaces were not working as intended. Costly manual reentry of 

inventory transactions was necessary. Further, both BSM and LMP have 

experienced cost increase and schedule slippage. BSM was originally 

scheduled to be fully operational in September of 2005. However, the date 

has shifted to midyear 2006 and the cost has increased from $764 million to 

$850 million. LMP has a current estimated cost of over $1 billion. As of 

March 2004, the Army had not determined when LMP would be fully 

operational at all locations. In 1999, we reported that the Army’s estimated 

cost was $421 million over a 10-year period. DOD cannot be assured that 

the two systems in our case study will provide the functionality needed and 

fully meet DLA and Army objectives.
Page 36 GAO-05-20 FFMIA FY 2003 Results

Successful reform of DOD’s fundamentally flawed financial and business 

management operations must simultaneously focus on its systems, 

processes, and people. While DOD has made some encouraging progress in 

addressing specific challenges, it is still in the very early stages of a 

departmentwide reform that will take many years to accomplish. Secretary 

Rumsfeld has made business transformation a priority. For example, 

through its Business Management Modernization Program, DOD is 

continuing its efforts to develop and implement a business enterprise 

architecture and establish effective management oversight and control 

over its business systems modernization investments. However, after 

about 3 years of effort and over $203 million in reported obligations, we 

have not seen significant change in the content of DOD’s architecture or in 

its approach to investing billions of dollars annually in existing and new 

systems. We have made numerous recommendations aimed at improving 

DOD’s plans for developing the next version of the architecture and 

implementing controls for selecting and managing business systems 

investments. To date, DOD has not addressed 22 of our 24 

recommendations.50

Department of Health and 

Human Services

HHS is currently implementing a new financial management system, the 

Unified Financial Management System (UFMS), to replace five outdated 

accounting systems. This project is expected to be phased in at the 

component agencies and fully implemented in fiscal year 2007. Our 2004 

analysis and evaluation focused on the system implementation efforts 

associated with all the HHS entities except for the Centers for Medicare 

and Medicaid Services (CMS) and NIH.51 We found that the lack of 

disciplined processes puts the implementation of HHS’ new financial 

management system at risk. 

We reported52 that HHS had not followed key disciplined processes and 

was at risk of implementing a new financial management system that 

would not fully meet the needs of its users. While HHS had executive 

50See GAO, Department of Defense: Long-standing Problems Continue to Impede 

Financial and Business Management Transformation, GAO-04-907T (Washington, D.C.: 

July 7, 2004).

51NIH and CMS have efforts under way to replace their financial systems that are expected 

to be fully implemented in 2006 and 2007, respectively.

52GAO-04-1008.
Page 37 GAO-05-20 FFMIA FY 2003 Results

sponsorship for the development of UFMS, it had focused on meeting its 

implementation schedule to deploy the system at its component agency, the 

Centers for Disease Control and Prevention (CDC) in October 2004 to the 

detriment of disciplined processes. HHS had not implemented effective 

disciplined processes in such areas as requirements management, testing, 

project management and oversight, and risk management. 

We found significant problems with HHS’ requirements management and 

testing process. Problems with requirements management practices 

include the lack of (1) a concept of operations to guide the development of 

requirements, (2) traceability of a requirement from the concept of 

operations through testing to ensure requirements were adequately 

addressed in the system, and (3) specificity in the requirements to minimize 

confusion in the implementation. These problems with requirements have 

resulted in a questionable foundation for the system testing process. 

Additionally, testing activities were scheduled too late in the 

implementation cycle, leaving little time to ensure that the defects found 

were addressed before the system was implemented at CDC. While 

adherence to schedule goals is generally desirable, it is key that project 

decisions are based on objective data and demonstrated project 

accomplishments, and are not schedule-driven. Otherwise, the risk of 

costly rework or failure appreciably increases. 

We further found that HHS had not developed the quantitative data 

necessary to assess whether UFMS will provide the needed functionality. 

HHS did not have a metrics measurement process to understand its 

capability to help manage the entire UFMS effort; or how its process will 

affect the UFMS cost, schedule, and performance objectives; or what 

corrective action is needed to reduce the risks associated with the 

problems identified. We also reported problems with HHS’ initial data 

conversion and system interfaces. 

In addition to the disciplined processes weaknesses, we noted that HHS 

had weaknesses in its information technology investment management, 

enterprise architecture, and information security. Serious understaffing 

and incomplete workforce planning have also plagued the UFMS project. 

The cumulative effects of these weaknesses increase the risk that UFMS 

will not fully serve the needs of its users nor achieve its budget and 

schedule goals.
Page 38 GAO-05-20 FFMIA FY 2003 Results

In September 2004, HHS decided to delay the implementation of a 

significant amount of functionality associated with the CDC deployment 

from October 2004 until April 2005 in order to address the issues that had 

been identified with the project.

National Aeronautics and 

Space Administration

In April 2000, NASA began its third attempt to modernize its financial 

management system. This effort, IFMP, is expected to produce an 

integrated, NASA-wide financial management system through the 

acquisition and incremental implementation of COTS and related hardware 

and software components. As of June 30, 2003, NASA reported that it had 

fully implemented the core financial module, which NASA considers the 

backbone of IFMP, at all of its 10 operating locations. 

As we have reported numerous times,53 NASA faces considerable 

challenges in meeting its IFMP commitments and providing the necessary 

tools to oversee its contracts and manage its programs. In April 2003, we 

reported that the core financial module does not provide agency managers 

or the Congress with useful cost and related information with which to 

make informed decisions, manage daily operations, and ensure 

accountability on an ongoing basis, and NASA was not following key best 

practices for acquiring and implementing the system. As we reported, key 

users, such as program managers, cost estimators, and congressional 

staffs, were not included in defining the system requirements. According to 

IFMP officials, NASA chose to forgo certain system capabilities to expedite 

implementation of the core financial model. As a result, managers and cost 

estimators continued to rely on means outside IFMP to capture data 

needed to manage programs. 

We have also reported that NASA’s approach to implementing its new 

system did not optimize the system’s performance and would likely cost 

more and take longer to implement than necessary. Specifically, NASA was 

not following key best practices for acquiring and implementing the 

system, which may affect the agency’s ability to fully benefit from the new 

system’s capabilities. First, NASA did not analyze the relationships among 

selected and proposed IFMP components to understand the logical and 

physical relationships among the components it acquired. By acquiring 

these IFMP components without first understanding system component 

53GAO-03-507, GAO-04-43, GAO-04-118, GAO-04-151, GAO-04-255, and GAO-04-754T.
Page 39 GAO-05-20 FFMIA FY 2003 Results

relationships, NASA increased its risks of implementing a system that will 

not optimize mission performance and will cost more and take longer to 

implement than necessary. Second, although industry best practices and 

NASA’s own system planning documents indicate that detailed 

requirements are needed as the basis for effective system testing, NASA did 

not require documentation of detailed system requirements prior to system 

implementation and testing. NASA’s approach instead relied on certain 

subject matter experts’ knowledge of the detailed requirements necessary 

to evaluate the functionality actually provided. As a result, NASA increased 

its risk that IFMP would cost more and do less than planned.

Further, we reported that NASA’s new financial management system did 

not provide key external reporting capabilities, such as the generation of 

complete and accurate information necessary for external reporting of 

NASA property and budgetary data, and the new system did not comply 

substantially with the requirements of FFMIA. 

Department of Veterans 

Affairs

VA recently halted implementation of its new core financial system, Core 

Financial and Logistics System (CoreFLS), at a potential loss of almost 

$250 million. VA provides federal benefits, including disability 

compensation, pensions, education, life insurance, home loan assistance, 

and medical care, to the 26 million living veterans and veterans’ survivors 

and dependents. VA began the detailed planning and acquisition of 

CoreFLS in June 1999 and was planning to have it fully implemented 

throughout VA by March 2006. The VA OIG reported that the contracting 

and monitoring of the CoreFLS project was not adequate and the pilot 

deployment of CoreFLS at a VA medical center encountered multiple 

problems. These problems are similar to the concerns we noted at DOD, 

HHS, and NASA.

The VA OIG noted that the success of CoreFLS greatly depends on the 

ability of the software to integrate with existing legacy systems, which in 

turn requires that existing legacy systems are properly implemented and 

maintained. The VA OIG found that most of the VA legacy systems at the 

pilot location contained inaccurate data because they had not been used 

properly and that this may be a systemic problem throughout VA. The 

effect of transferring inaccurate data to CoreFLS at this pilot location 

interrupted patient care and medical center operations. This was 

compounded by VA inadequately training employees on how to use the 

system, unreliable test procedures and results, and unsubstantiated 

performance results. Problems were also identified with reconciling 
Page 40 GAO-05-20 FFMIA FY 2003 Results

accounts payable, accounts receivable, undelivered orders, and real 

property.

When CoreFLS was deployed at the pilot location in October 2003, it did 

not function as project managers expected because of inaccurate or 

incomplete vendor and inventory system data. Because of these problems 

with vendor and inventory systems, the VA pilot location made excessive 

purchases of medical supplies. For example, on February 23, 2004, the 

pilot location purchased 100 cup biopsy forceps with a total value of 

$30,700, which were shipped overnight to the medical center, but returned 

to the vendor less than a month later. In addition, late payment penalties by 

the medical center for the first two quarters of fiscal year 2004 totaled 

$10,800, compared to $600 for the entire fiscal year 2003. The VA OIG’s 

review also found that the inventory was overstated by approximately $2.3 

million out of $3.6 million recorded, because an item valued at $23 showed 

a quantity on-hand of 100,000 when, in fact, the on-hand quantity was only 

one. 

As a result of these problems, patient care was interrupted by supply 

outages and other problems. The inability to provide sterile equipment and 

needed supplies to the operating room resulted in the cancellation of 81 

elective surgeries for a week in both November 2003 and February 2004. In 

addition, the operating room was forced to operate at two-thirds of its prior 

capacity. Because of the serious nature of the problems raised with 

CoreFLS, VA management decided to focus on transitioning back to the 

previous financial management software and pull together a senior 

leadership team to examine the results of the pilot and make 

recommendations to the VA Secretary regarding the future of CoreFLS.

Governmentwide Initiatives 

to Improve Financial 

Management Systems Spur 

Needed Change

As agencies move forward with initiatives to address FFMIA-related 

problems, it is important that consideration be given to the numerous 

governmentwide initiatives under way to address long-standing financial 

management weaknesses. As stated in the PMA, there are few items more 

urgent than ensuring that the federal government operates efficiently and is 

results-oriented. While FFMIA implementation relates directly to the 

improved financial performance initiative, development and maintenance 

of FFMIA-compliant systems will also affect the implementation of the 

other four PMA initiatives. Notably, OMB is developing a federal enterprise 

architecture that is intended to facilitate the government’s ability to make 

significant progress across the PMA. For example, as part of the e-gov 

PMA initiative, the number of federal payroll providers is being 
Page 41 GAO-05-20 FFMIA FY 2003 Results

consolidated. Numerous agencies had targeted their payroll operations for 

costly modernization, and according to OMB, millions of dollars will be 

saved through shared resources and processes and by modernizing on a 

cross-agency, governmentwide basis. 

The Clinger-Cohen Act sets forth a variety of initiatives to support better 

decision making for capital investments in information technology, which 

has led to the development of the Federal Enterprise Architecture and 

better-informed capital investment and control processes within agencies 

and across government. This has produced another broad shift in the 

financial systems environment—one that acknowledges that financial 

systems planning can no longer take place within an isolated environment 

or “stovepipe,” but must now be integrated with enterprise goals. Managed 

properly, an enterprise architecture can clarify and help optimize the 

interdependencies and relationships among an organization’s business 

operations and the underlying information technology infrastructure and 

applications that support those operations. 

Moreover, developing such an architecture will help address the 

government’s inability to properly reconcile and report on 

intragovernmental transactions. We have reported54 for years that the heart 

of the intragovernmental transactions issue was that the federal 

government lacked clearly articulated business rules for these transactions 

so that they would be handled consistently by agencies. This is 

compounded by limitations and incompatibility of agency and trading 

partner systems, among other issues. OMB and Treasury have taken steps 

to help transform and standardize intragovernmental transactions, 

including instituting an e-gov project55 to define a governmentwide data 

architecture and provide a single source of detailed trading partner data. 

The Intragovernmental Transaction Exchange was piloted from October 

2003 to April 2004, and provided information about the business processes 

and technologies used to interact with it. After evaluating the results of the 

pilot, OMB expects to phase it into use at all agencies. 

54GAO, Fiscal Year 2003 U.S. Government Financial Statements: Sustained Improvement 

in Federal Financial Management Is Crucial to Addressing Our Nation’s Future Fiscal 

Challenges, GAO-04-477T (Washington, D.C.: Mar. 3, 2004).

55E-gov is a PMA initiative. OMB has selected 25 presidential e-gov efforts that focus on a 

wide variety of services, aiming to simplify and unify agency work processes and 

information flows, provide one-stop services to citizens, and enable information to be 

collected online once and reused rather than being collected many times.
Page 42 GAO-05-20 FFMIA FY 2003 Results

Building upon the efforts of the Federal Enterprise Architecture program to 

support the PMA for e-gov, OMB and designated agency task forces have 

launched the line of business (LOB) initiative. This initiative seeks to 

develop business-driven, common solutions for five lines of business that 

span across the federal government. The five initiatives are financial 

management, human resources management, grants management, federal 

health architecture, and case management. Each of the lines of business 

shares similar business requirements and business processes. OMB and 

the LOB task forces plan to use either enterprise architecture-based 

principles and best practices to identify common solutions for business 

processes, technology-based shared services to be made available to 

government agencies, or both. Driven from a business perspective rather 

than a technology focus, the solutions are expected to address distinct 

business improvements to enhance government’s performance and 

services for citizens. The results of LOB efforts are expected to save 

taxpayer dollars, reduce administrative burden, and significantly improve 

service delivery. 

The financial management LOB goals are to (1) achieve or enhance process 

improvements and cost savings in the acquisition, development, 

implementation, and operation of financial management systems through 

shared services, joint procurements, consolidation, and other means; 

(2) promote seamless data exchange between and among federal agencies; 

(3) provide for the standardization of business processes and data 

elements; and (4) strengthen internal controls through real-time integration 

of core financial and subsidiary systems. OMB has an ambitious time 

frame, September 2004, for identifying a common solution and developing a 

target architecture and a joint business case. At the time of our review, 

OMB had not completed this effort. Agency business cases submitted as 

part of the budget cycle are expected to reflect the proposed common 

solutions. GAO has long supported and called for such initiatives to 

standardize and streamline common systems, which cannot only reduce 

costs but, if done correctly, can improve accountability. 

The problems we have seen related to requirements, testing, interfaces, and 

data conversion at the agency level indicate that attention to these 

disciplined processes will continue to be important as OMB and the LOB 

task forces move forward. These initiatives and the intragovernmental 

transaction exchange will be required to address broader sets of 

requirements, interfaces, and data conversion issues than those at an 

individual agency level, thus amplifying the complexity of the task. 
Page 43 GAO-05-20 FFMIA FY 2003 Results

Disciplined process can play an important role in helping governmentwide 

systems initiatives reduce the risk of these projects to acceptable levels. 

In addition, with many new financial management systems being 

implemented in the federal government, it is crucial that the federal 

government have a qualified workforce with the right mix of skills to 

implement financial systems successfully. Our report56 on effective 

strategic workforce planning highlighted five principles that such a process 

should address irrespective of the context in which planning is done. 

Among the principles are determining the critical skills and competencies 

that will be needed to achieve current and future results, and developing 

strategies tailored to address gaps in the number, deployment, and 

alignment of human capital approaches. At a JFMIP-sponsored forum on 

successful integration and interoperability of business management 

systems held in May 2004, the participants noted that agencies are losing 

experienced people for a variety of reasons and relying excessively on 

outside contractors because they have no other choice. Participants 

expressed concern that internally, staff lack the technical expertise needed. 

Agency officials overseeing implementations have expertise on the 

functional requirements, such as government accounting standards, but 

vendors and integrators have little expertise in these areas. This is 

extremely high risk and costly, and greater oversight and close monitoring 

of contractors is needed. Further, our executive guide57 emphasizes the 

need for developing a financial management team with the right mix of 

skills and competencies. A changing financial management business vision 

requires shifting workforce capacities and providing a financial 

management workforce that is more analytic and capable of providing 

decision support. 

Conclusions Long-standing problems with agencies’ financial systems continue to make 

it difficult for agencies to routinely produce reliable, useful, and timely 

financial information. While a number of agencies are receiving 

unqualified (“clean”) opinions on their financial statements, the continued 

widespread noncompliance with FFMIA shows that agencies still have a 

56GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, GAO04-39 (Washington, D.C.: Dec. 11, 2003).

57GAO, Executive Guide: Creating Value Through World-class Financial Management, 

GAO/AIMD-00-134 (Washington, D.C.: April 2000). 
Page 44 GAO-05-20 FFMIA FY 2003 Results

long way to go to having systems, processes, and controls that routinely 

generate reliable, useful, and timely information. 

The FFMIA-related problems reported in agency audit reports indicate that 

federal financial management systems are not currently providing federal 

managers the financial data needed for day-to-day management of their 

programs or for external reporting in an efficient or timely manner. Yet we 

remain concerned that the full nature and scope of the problems have not 

been identified because auditors have only provided negative assurance in 

their FFMIA reports. We believe the law requires auditors to provide 

positive assurance on FFMIA compliance. Therefore, we reaffirm our 

recommendation made in prior reports that OMB revise its current FFMIA 

guidance to require agency auditors to provide a statement of positive 

assurance when reporting an agency’s systems to be in substantial 

compliance, which entails a more thorough examination of the agency’s 

systems. We also reaffirm our other prior recommendation for OMB to 

explore further clarification of the definition of “substantial compliance” in 

its FFMIA guidance to encourage consistent reporting among agency 

auditors. As we stated58 in our prior reports, auditors we interviewed had 

concerns about providing positive assurance in reporting on agency 

systems’ FFMIA compliance because of a need for clarification regarding 

the meaning of substantial compliance.

Implementing new COTS core financial systems is a formidable challenge 

since financial management systems are not only needed for external 

reporting but, most importantly, are needed to provide the financial 

information program managers need to manage operations on a day-to-day 

basis. Reliable, useful, and timely financial management information is key 

to achieving the goals of the PMA and its related initiatives, such as PART. 

As the federal government moves forward with agency implementations of 

new financial management systems and for systems implemented to satisfy 

governmentwide initiatives, adherence to proven disciplined processes to 

minimize risks and improve management of these implementations is 

critical. Moreover, people with the right skill sets in the right places at the 

right times are critical to efficiently and effectively implementing a 

financial management system and operating it once it is in place. 

Improvements in federal financial management systems are in some cases 

a long-term goal, but with sustained attention from important decision 

58GAO-02-29 and GAO-03-31.
Page 45 GAO-05-20 FFMIA FY 2003 Results

makers, including the Congress and OMB, the goals of the CFO Act and 

FFMIA can be achieved.

Agency Comments and 

Our Evaluation

In written comments (reprinted in app. VI) on a draft of this report, OMB 

agreed with our assessment that while federal agencies continue to make 

progress in addressing financial management systems weaknesses, many 

agencies still lack the ability to produce the data needed to efficiently and 

effectively manage day-to-day operations. As in previous years, OMB 

disagreed with our recommendation that agency auditors be required to 

provide a statement of positive assurance when reporting agency systems 

to be in substantial compliance with FFMIA. OMB said that the PMA and 

FFMIA should be viewed as complementary methods for achieving 

improvements in financial management systems. OMB stated that the 

framework of performance standards established under the PMA provides 

a corroborative mechanism for evaluating FFMIA compliance, which 

together with existing audit processes can provide an accurate assessment 

of substantial compliance. Therefore, OMB does not believe that the 

addition of a statement of positive assurance on FFMIA compliance would 

be beneficial. While we agree that the initiatives of the PMA are stimulating 

improvements, auditors need to consider other aspects of financial 

management systems when assessing FFMIA compliance that are not fully 

addressed through the current reporting structure. Our concern is that 

some of the information provided by this approach, such as monthly 

financial performance metrics for managing activities, does not come 

under audit scrutiny and may not be reliable. In contrast, an opinion by an 

independent auditor of FFMIA compliance would confirm that an agency’s 

systems substantially met the requirements of FFMIA and provide 

additional confidence in the information provided by the PMA. Finally, as 

we have stated in previous reports, a statement of positive assurance is a 

statutory requirement under the act.

With regard to our prior recommendation, which we reaffirmed in this 

report, for revised guidance that clarifies the definition of substantial 

compliance, OMB said that the performance results obtained from the PMA 

initiatives will allow a further refinement of the existing substantial 

compliance indicators. OMB agreed to consider clarifying the definition of 

“substantial compliance” in future policy and guidance updates. As we 
Page 46 GAO-05-20 FFMIA FY 2003 Results

noted in our prior reports,59 auditors we interviewed expressed a need for 

clarification regarding the meaning of substantial compliance. 

OMB also provided additional oral comments, which we incorporated as 

appropriate.

We are sending copies of this report to the Chairman and Ranking Minority 

Member, Subcommittee on Financial Management, the Budget, and 

International Security, Senate Committee on Governmental Affairs, and to 

the Chairman and Ranking Minority Member, Subcommittee on 

Government Efficiency and Financial Management, House Committee on 

Government Reform. We are also sending copies to the Director of the 

Office of Management and Budget, the Secretary of Homeland Security, the 

heads of the 23 CFO Act agencies, and agency CFOs and IGs. Copies will 

be made available to others upon request. In addition, this report will be 

available at no charge on the GAO Web site at http://www.gao.gov.

This report was prepared under the direction of Sally E. Thompson, 

Director, Financial Management and Assurance, who may be reached at 

(202) 512-2600 or by e-mail at thompsons@gao.gov if you have any 

questions. Staff contacts and other key contributors to this report are 

listed in appendix VII.

David M. Walker

Comptroller General

of the United States 

59GAO-02-29 and GAO-03-31.
Page 47 GAO-05-20 FFMIA FY 2003 Results

Appendix I

Requirements and Standards Supporting Apendxies

Federal Financial Management ApendxiI

Financial Management 

Systems Requirements

The policies and standards prescribed for executive agencies to follow in 

developing, operating, evaluating, and reporting on financial management 

systems are defined in Office of Management and Budget (OMB) Circular 

No. A-127, Financial Management Systems. The components of an 

integrated financial management system include the core financial system,1

managerial cost accounting system, and administrative and programmatic 

systems. Administrative systems are those that are common to all federal 

agency operations,2

 and programmatic systems are those needed to fulfill 

an agency’s mission. The Program Management Office (PMO), managed by 

the Executive Director of the Joint Financial Management Improvement 

Program (JFMIP) and funded by the Chief Financial Officers (CFO) 

Council, has issued federal financial management systems requirements 

(FFMSR)3

 for the core financial system and managerial cost accounting 

system, and is in the process of issuing these requirements for the 

administrative and programmatic systems. Appendix II lists the federal 

financial management systems requirements published to date. Figure 5 is 

the PMO model that illustrates how these systems interrelate in an agency’s 

overall systems architecture. 

1

Core financial systems, as defined by the Program Management Office, include those 

systems for managing general ledger, funding, payments, receivables, and certain basic cost 

functions. 

2

Examples of administrative systems include budget, acquisition, travel, property, and 

human resources and payroll. 

3

OMB Circular No. A-127 references the series of publications called FFMSRs, issued by 

PMO, as the primary source of governmentwide requirements for financial management 

systems. 
Appendix I

Requirements and Standards Supporting 

Federal Financial Management

Page 48 GAO-05-20 FFMIA FY 2003 Results

Figure 5: Agency Systems Architecture

OMB Circular No. A-127 requires agencies to purchase commercial off-theshelf (COTS) software that has been tested and certified through the PMO 

software certification process when acquiring core financial systems. 

PMO’s certification process, however, does not eliminate or significantly 

reduce the need for agencies to develop and conduct comprehensive 

testing efforts to ensure that the COTS software meets their requirements. 

Moreover, according to PMO, core financial systems certification does not 

mean that agencies that install these packages will have financial 

management systems that are compliant with the Federal Financial 

Management Improvement Act (FFMIA) of 1996. Many other factors can 

affect the capability of the systems to comply with FFMIA, including 

modifications made to the PMO-certified core financial management 

systems software and the validity and completeness of data from feeder 

systems. 

Departmental Executive Information System

Workstation Support Tools

Guaranteed

Loan

System

Direct

Loan

System

Seized

Property

& Forfeited

Asset

Systems

Travel

System Human Resources

& Payroll

System

Non-financial

Systems

Budget

Formulation

System

Acquisition

System

Property

Management

Systems

Inventory

System

Grant Financial

System

Insurance Claim

System

Financial

Reporting

System

Core

Financial

System

Managerial CostAccountni g

Revenue

System

Benefit System

Source: PMO.
Appendix I

Requirements and Standards Supporting 

Federal Financial Management

Page 49 GAO-05-20 FFMIA FY 2003 Results

Federal Accounting 

Standards

The Federal Accounting Standards Advisory Board (FASAB)4 promulgates 

federal accounting standards that agency CFOs use in developing financial 

management systems and preparing financial statements. FASAB develops 

the appropriate 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 Sponsors—the 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 has recognized the 

federal accounting standards promulgated by FASAB as 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 25 

Statements of Federal Financial Accounting Standards (SFFAS) and 4 

Statements of Federal Financial Accounting Concepts (SFFAC).5

 The 

concepts and standards are the basis for OMB’s guidance to agencies on the 

form and content of their financial statements and for the government’s 

consolidated financial statements. Appendix III lists the concepts, 

standards, and interpretations6

 along with their respective effective dates.

4

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

General established FASAB to develop a set of generally accepted accounting standards for 

the federal government. Effective October 1, 2003, FASAB consists of six nonfederal or 

public members, one member from the Congressional Budget Office, and the three 

Sponsors. 

5

Accounting 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.

6

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.
Appendix I

Requirements and Standards Supporting 

Federal Financial Management

Page 50 GAO-05-20 FFMIA FY 2003 Results

FASAB’s Accounting and Auditing Policy Committee (AAPC)7 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 of Agency’s Financial Statements Bulletin and Audit 

Requirements for Federal Financial Statements Bulletin. To date, AAPC 

has issued six technical releases, which are listed in appendix IV along with 

their release dates.

U.S. Government Standard 

General Ledger

The U.S. Government Standard General Ledger (SGL) was established by 

an interagency task force under the direction of OMB and mandated for use 

by agencies in OMB and Department of the 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 throughout the year; enhance financial 

control; and support budget and external reporting, including financial 

statement preparation. For example, agency use of the SGL accounts and 

OMB’s new intergovernmental business rules for standardizing 

intragovernmental activity and balances are key to removing one of the 

material weaknesses that GAO has reported on the governmentwide 

consolidated statements since fiscal year 1997. The SGL is intended to 

improve data stewardship throughout the federal government, enabling 

consistent reporting at all levels within the agencies and providing 

comparable data and financial analysis governmentwide.8

 

Internal Control Standards The Congress enacted legislation, 31 U.S.C. 3512(c),(d) (commonly 

referred to as the Federal Managers’ Financial Integrity Act of 1982 (FIA)), 

to strengthen internal controls and accounting systems throughout the 

federal government, among other purposes. Issued pursuant to FIA, the 

Comptroller General’s Standards for Internal Control in the Federal 

7

In 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.

8

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

Management Service is responsible for maintaining the SGL and answering agency inquiries.
Appendix I

Requirements and Standards Supporting 

Federal Financial Management

Page 51 GAO-05-20 FFMIA FY 2003 Results

Government9 provides standards directed at helping agency managers 

implement effective internal control, an integral part of improving financial 

management systems. Internal control is a major part of managing an 

organization and comprises the plans, methods, and procedures used to 

meet missions, goals, and objectives. In summary, internal control, which 

under OMB’s guidance for FIA is synonymous with management control, 

helps government program managers achieve desired results through 

effective stewardship of public resources. 

Effective internal control also helps in managing change to cope with 

shifting environments and evolving demands and priorities. As programs 

change and agencies strive to improve operational processes and 

implement new technological developments, management must 

continually assess and evaluate its internal control to ensure that the 

control objectives are being achieved. 

9

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3

(Washington, D.C.: November 1999).
Page 52 GAO-05-20 FFMIA FY 2003 Results

Appendix II

Publications in the Federal Financial 

Management Systems Requirements Series ApendxiI

Source: JFMIP.

FFMSR document Issue date

FFMSR-8 Systems Requirements for Managerial Cost Accounting February 1998

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

JFMIP-SR-00-4 Property Management Systems Requirements October 2000

JFMIP-SR-01-01 Benefit System Requirements September 2001

JFMIP-SR-02-01 Core Financial System Requirements November 2001

JFMIP-SR-02-02 Acquisition/Financial Systems Interface 

Requirements

June 2002

JFMIP-SR-03-01 Revenue System Requirements January 2003

JFMIP-SR-03-02 Inventory, Supplies and Materials System 

Requirements

August 2003

JFMIP-SR-02-01 Addendum to Core Financial System 

Requirements

March 2004

JFMIP-SR-01-04 Framework for Federal Financial Management 

Systems 

April 2004
Page 53 GAO-05-20 FFMIA FY 2003 Results

Appendix III

Statements of Federal Financial Accounting 

Concepts, Statements of Federal Financial 

Accounting Standards, and Interpretations ApendxiI

Effective for 

fiscal yeara

Concepts

SFFAC No. 1 Objectives of Federal Financial Reporting

SFFAC No. 2 Entity and Display

SFFAC No. 3 Management’s Discussion and Analysis

SFFAC No. 4 Intended Audience and Qualitative Characteristics for the 

Consolidated Financial Report of the United States Government

Standards

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

SFFAS No. 19 Technical Amendments to Accounting Standards for Direct 

Loans and Loan Guarantees in SFFAS No. 2

2003

SFFAS No. 20 Elimination of Certain Disclosures Related to Tax 

Revenue Transactions by the Internal Revenue Service, Customs, and 

Others

2001
Appendix III

Statements of Federal Financial Accounting 

Concepts, Statements of Federal Financial 

Accounting Standards, and Interpretations

Page 54 GAO-05-20 FFMIA FY 2003 Results

Source: FASAB.

a

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

Interpretations.

SFFAS No. 21 Reporting Corrections of Errors and Changes in 

Accounting Principles

2002

SFFAS No. 22 Change in Certain Requirements for Reconciling 

Obligations and Net Cost of Operations

2001

SFFAS No. 23 Eliminating the Category National Defense Property, 

Plant, and Equipment

2003

SFFAS No. 24 Selected Standards for the Consolidated Financial Report 

of the United States Government

2002

SFFAS No. 25 Reclassification of Stewardship Responsibilities and 

Eliminating the Current Services Assessment

2005

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

No. 6 Accounting for Imputed Intra-departmental Costs

(Continued From Previous Page)

Effective for 

fiscal yeara
Page 55 GAO-05-20 FFMIA FY 2003 Results

Appendix IV

AAPC Technical Releases ApendxiIV

Source: FASAB.

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

TR-5 Implementation Guidance on SFFAS No. 10: Accounting for 

Internal Use Software

May 14, 2001

TR-6 Preparing Estimates for Direct Loan and Loan Guarantee 

Subsidies Under the Federal Credit Reform Act (Amendments to TR-3)

January 2004
Page 56 GAO-05-20 FFMIA FY 2003 Results

Appendix V

Checklists for Reviewing Systems under the 

Federal Financial Management Improvement 

Act ApendxiV

Source: GAO.

Checklist Issue date

GAO/AIMD-00-21.2.3 Human Resources and Payroll Systems 

Requirements 

March 2000

GAO-01-99G Seized Property and Forfeited Assets Systems 

Requirements 

October 2000

GAO/AIMD-21.2.6 Direct Loan System Requirements April 2000

GAO/AIMD-21.2.8 Travel System Requirements May 2000

GAO/AIMD-99-21.2.9 System Requirements for Managerial Cost 

Accounting 

January 1999

GAO-01-371G Guaranteed Loan System Requirements March 2001

GAO-01-911G Grant Financial System Requirements September 2001

GAO-02-171G Property Management Systems Requirements December 2001

GAO-04-22G Benefit System Requirements October 2003

GAO-04-650G Acquisition/Financial Systems Interface 

Requirements

June 2004

GAO-04-763G Core Financial System Requirements (Exposure 

Draft)

July 2004
Page 57 GAO-05-20 FFMIA FY 2003 Results

Appendix VI

Comments from the Office of Management 

and Budget ApendxiVI
Appendix VI

Comments from the Office of Management 

and Budget

Page 58 GAO-05-20 FFMIA FY 2003 Results
Page 59 GAO-05-20 FFMIA FY 2003 Results

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Sally E. Thompson, (202) 512-2600

Kay L. Daly, (202) 512-9312

Acknowledgments In addition to those named above, Alberto Garza, Lisa M. Knight, Michael S. 

LaForge, W. Stephen Lowrey, Gina K. Ross, Sandra S. Silzer, and Bryan D. 

Weisbard made key contributions to this report.

(193054) 
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