United States Government Accountability Office

GAO Report to Congressional Committees

FINANCIAL 

MANAGEMENT 

Improvements Under 

Way but Serious 

Financial Systems 

Problems Persist 

September 2006 

 

GAO-06-970 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2006

FINANCIAL MANAGEMENT 

Improvements Under Way but Serious 

Highlights of GAO-06-970, a report to the Financial Systems Problems Persist 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate and 

the Committee on Government Reform, 

House of Representatives

The ability to produce the financial 

information needed to efficiently

and effectively manage the day-today operations of the federal 

government and provide 

accountability to taxpayers 

continues to be a challenge for 

most federal agencies. To help

address this challenge, the Federal

Financial Management 

Improvement Act of 1996 (FFMIA) 

requires the Chief Financial 

Officers (CFO) Act agencies to

implement and maintain financial 

management systems that comply

substantially with (1) federal 

financial management systems 

requirements, (2) federal 

accounting standards, and (3) the 

U.S. Government Standard 

General Ledger at the transaction 

level. FFMIA also requires GAO to 

report annually on the 

implementation of the act. 

While the number of CFO Act agencies receiving unqualified opinions on 

their financial statements has increased significantly since 1997, the number 

of CFO Act agencies that did not substantially comply with FFMIA has 

remained fairly constant as shown below. Although agencies have made

improvements and have other enhancements under way, the systems 

deficiencies that have prompted unfavorable FFMIA assessments indicate 

that the financial management systems of many agencies are still not able to 

routinely produce reliable, useful, and timely financial information. GAO 

views the continuing lack of compliance with FFMIA and the associated 

problems with agency financial systems to be significant challenges to 

improving the management of the federal government. 

0

6

12

18

24

1997 1998 1999 2000 2001 2002 2003 2004 2005

CFO Act agencies not in compliance

Source: GAO analysis, based on independent auditors’ financial statement audit reports prepared by

agency inspectors general and contract auditors for fiscal years 1997 through 2005. 

Year

20 21 21 20 19 19

17

16

18

For fiscal year 2005, auditors for five agencies provided negative assurance 

that agency systems substantially complied with FFMIA as allowed by the 

Office of Management and Budget's (OMB) current audit guidance. This

means that nothing came to their attention to indicate that agency financial 

management systems did not substantially comply with FFMIA 

requirements. GAO continues to believe that this type of reporting is not 

sufficient for reporting under the act. In addition, negative assurance may 

provide the false impression that the auditors are reporting that the agencies’ 

systems are compliant. In contrast, auditors for the Department of Labor 

(Labor) provided positive assurance, which is an opinion, by reporting that 

Labor’s financial management systems substantially complied with FFMIA 

requirements—a reporting practice that adds more value. Auditors have

expressed concern about providing positive assurance because of the need 

to clarify the meaning of substantial compliance. In addition, some auditors 

stated that a change in OMB’s guidance that permits negative assurance

would be necessary for them to provide an opinion on FFMIA compliance. 

To help address financial management systems deficiencies, OMB continues 

to move ahead on initiatives to enhance financial management in the federal 

government. Moreover, the continuing leadership and support of Congress 

will be crucial in reforming financial management in the federal government.

What GAO Recommends

GAO reaffirms its prior 

recommendations that OMB revise 

its guidance to require positive

assurance regarding substantial 

compliance with FFMIA, and

clarify the meaning of substantial

compliance. As in the past, OMB 

did not agree with GAO's view on 

auditors providing positive 

assurance on FFMIA, but agreed to 

consider clarifying the definition of 

substantial compliance in future

policy and guidance updates. GAO 

believes positive assurance is

required by FFMIA and will 

continue to work with OMB on this 

issue. 

www.gao.gov/cgi-bin/getrpt?GAO-06-970.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-9095 or 

williamsm1@gao.gov. 
Page i GAO-06-970 FFMIA Fiscal Year 2005 Results 

Letter 1

Results In Brief 2 

Background 8 

Scope and Methodology 12 

FFMIA Assessments Identify Continuing Systems Weaknesses 13 

Federal Financial Management System Initiatives Continue to 

Evolve 31 

Conclusions 51 

Agency Comments and Our Evaluation 51 

Appendix I Requirements and Standards Supporting Federal 

Financial Management 55 

Financial Management Systems Requirements 55 

Federal Accounting Standards 58 

U.S. Government Standard General Ledger 59 

Internal Control Standards 59 

Appendix II Publications in the Federal Financial Management 

Systems Requirements Series 61 

Appendix III Statements of Federal Financial Accounting Concepts, 

Standards, Interpretations, and Technical Bulletins 62 

Appendix IV AAPC Technical Releases 64 

Appendix V Checklists for Reviewing Systems under the Federal 

Financial Management Improvement Act 65 

Appendix VI Comments from the Office of Management and Budget 66 

Appendix VII Auditors’ FFMIA Assessments for Fiscal Year 2005 68 

Contents 
Page ii GAO-06-970 FFMIA Fiscal Year 2005 Results 

Appendix VIII GAO Contact and Staff Acknowledgments 69 

 

Table 

Table 1: Key Causes of Systems Implementation Failure 37 

Figures 

Figure 1: Auditors’ FFMIA Assessments for Fiscal Years 1997 

through 2005 4 

Figure 2: Problems Reported by Auditors for Fiscal Years 2001 

through 2005 6 

Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 1997 

through 2005 14 

Figure 4: Auditors’ Assessments of Substantial Compliance with 

FFMIA’s Three Requirements for Fiscal Years 1997 

through 2005 16 

Figure 5: Problems Reported by Auditors for Fiscal Years 2001 

through 2005 22 

Figure 6: Overall Vision of the Financial Management Line of 

Business 40 

Figure 7: Governance Structure 47 

Figure 8: Agency Systems Architecture 56 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-06-970 FFMIA Fiscal Year 2005 Results 

September 26, 2006 

The Honorable Susan M. Collins 

Chairman 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Homeland Security and 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 

The lack of reliable, useful, and timely financial data needed to efficiently 

and effectively manage the day-to-day operations of the federal 

government and provide accountability to taxpayers and the Congress 

continues to be a weakness at many federal agencies. To address this longstanding weakness, the Congress mandated financial management reform 

within the federal government by enacting the Chief Financial Officers 

(CFO) Act of 1990.1

 The CFO Act laid the foundation for a comprehensive 

reform of federal financial management by establishing a leadership 

structure, requiring audited financial statements, and strengthening 

accountability reporting. This act also requires agencies to implement 

modern financial management systems in order to attain the systematic 

measurement of performance; the development of cost information; and 

the integration of program, budget, and financial information for 

management reporting. The end goal of the CFO Act is to greatly enhance 

the ability of managers to do their jobs by providing the full range of 

financial information needed for day-to-day management. 

The Federal Financial Management Improvement Act of 19962

 (FFMIA) 

was enacted on September 30, 1996, and builds on the foundation laid by 

 1

Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 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). 

United States Government Accountability Office

Washington, DC 20548 

Comptroller General

of the United States
Page 2 GAO-06-970 FFMIA Fiscal Year 2005 Results 

the CFO Act by highlighting the need for agencies to have financial 

management systems that are able to generate reliable, useful, and timely 

information needed to make fully informed decisions and to ensure 

accountability on an ongoing basis. FFMIA requires the major departments 

and agencies covered by the CFO Act3

 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 comply with 

the act’s requirements. In addition, we are required to report annually on 

the implementation status of the act. This report, our tenth, discusses 

(1) the auditors’ assessments of agency systems’ compliance with FFMIA 

requirements for fiscal years 1997 through 2005 and the financial 

management systems problems that continued to affect systems’ FFMIA 

compliance in fiscal year 2005 and (2) the initiatives under way to help 

move federal financial management toward FFMIA compliance. 

We conducted our work from January through July 2006 in Washington, 

D.C., Baltimore, Md., and Kansas City, Mo., 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. We received written comments from the OMB Controller. OMB’s 

comments are discussed in the Agency Comments and Our Evaluation 

section and reprinted in appendix VI. 

Since the passage of FFMIA, there has been progress in achieving the 

requirements of this landmark legislation. While improvements have been 

made throughout government, much work remains to fulfill the underlying 

goals of the CFO Act and FFMIA. Notably, the number of CFO Act 

agencies receiving unqualified opinions on their financial statements has 

increased significantly since FFMIA reporting began in 1997. In fiscal year 

1997, 11 of the CFO Act agencies attained unqualified opinions on their 

 3

The Department of Homeland Security (DHS) Financial Accountability Act, Pub. L. No. 

108-330, 118 Stat. 1275 (Oct. 16, 2004), added DHS to the list of CFO Act agencies, 

increasing the number of CFO Act agencies to 24 for fiscal year 2005. 

Results In Brief 
Page 3 GAO-06-970 FFMIA Fiscal Year 2005 Results 

financial statements, while 194 agencies received unqualified opinions for 

fiscal year 2005. As shown in figure 1, the ability of federal financial 

management systems to fully address FFMIA requirements has not 

advanced at the same pace. In fiscal year 1997, 20 agencies were reported 

as having systems that were not in substantial compliance with at least 

one of the three FFMIA systems requirements, while in fiscal year 2005, 

auditors for 18 of the CFO Act agencies reported that the agencies’ 

financial management systems did not substantially comply with at least 

one of the three FFMIA requirements. While progress has been made in 

addressing financial management systems’ weaknesses, the lack of 

substantial compliance with the three requirements of FFMIA, and the 

associated deficiencies, indicates that the financial management systems 

of many agencies are still not able to routinely produce reliable, useful, 

and timely financial information. Consequently, the federal government’s 

access to relevant, timely, and reliable data to effectively manage and 

oversee its major programs, which is the ultimate objective, was and 

continues to be restricted. 

 4

For fiscal year 2005, 18 of 24 CFO Act agencies were able to attain unqualified opinions on 

their financial statements by the November 15, 2005, reporting deadline established by 

OMB. The independent auditor of the Department of State subsequently withdrew its 

qualified opinion on the department’s fiscal year 2005 financial statements and reissued an 

unqualified opinion on these financial statements dated December 14, 2005. As a result, 19 

CFO Act agencies received unqualified opinions on their fiscal year 2005 financial 

statements. 
Page 4 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 1: Auditors’ FFMIA Assessments for Fiscal Years 1997 through 2005 

In fiscal year 2005, auditors for five5

 of the six other CFO Act agencies 

provided what is termed negative assurance of FFMIA compliance. In 

essence, they reported that nothing came to their attention during the 

course of their planned audit procedures to indicate that these agencies’ 

financial management systems did not meet FFMIA requirements. 

Negative assurance is the level of assurance specified by the Office of 

Management and Budget’s (OMB) audit guidance for reporting on FFMIA 

compliance. From our perspective, FFMIA requires auditors to provide 

positive assurance, which is an opinion, on FFMIA compliance. The 

auditors for one agency, the Department of Labor (Labor), provided 

positive assurance, as required by the act, when they reported that in their 

opinion, Labor’s financial management systems substantially complied 

with the requirements of FFMIA. Providing positive assurance requires 

some additional testing beyond that typically performed by auditors to 

render an opinion on financial statements. For example, in performing 

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

 5

The Department of Commerce (Commerce), the Environmental Protection Agency (EPA), 

the National Science Foundation (NSF), the Office of Personnel Management (OPM), and 

the Social Security Administration (SSA). 
Page 5 GAO-06-970 FFMIA Fiscal Year 2005 Results 

financial management systems to process and summarize financial 

information that flows into agency financial statements. In contrast, 

FFMIA requires auditors to take a broader perspective and consider the 

financial management systems capability to also reliably record and report 

financial information for a variety of purposes beyond financial 

statements. Thus FFMIA furthers the ultimate goal of improving financial 

management systems in the federal government and assisting agency 

managers in having timely access to reliable data for decision-making 

purposes. This in turn, will allow them to do their jobs more efficiently and 

effectively. 

For this reason, this second year of Labor’s auditors providing positive 

assurance on FFMIA compliance continues to be a very noteworthy 

achievement by Labor. We look forward to other agencies opting to 

upgrade their level of assurance on this matter as required by the act. 

Auditors for the majority of the agencies we visited stated that additional 

guidance on the definition of substantial compliance would facilitate their 

assessments of financial management systems for FFMIA reporting. Some 

auditors also indicated that a change in OMB’s guidance on FFMIA 

reporting would be necessary for them to shift to providing opinions on 

FFMIA compliance. 

As shown in figure 2, based on our review of the fiscal year 2005 financial 

statement audit reports for the 18 agencies with systems reported not to 

be in substantial compliance with one or more of the three FFMIA 

requirements, the same six primary problems that we have previously 

reported continue to exist. While more severe at some agencies than 

others, the nature and seriousness of the problems reported indicate that 

most agencies’ financial management systems are frequently unable to 

routinely produce reliable, useful, and timely financial information. We 

view the problems with agencies’ financial management systems to be a 

significant challenge to improving the financial management of the federal 

government, because the problems indicate that many agencies are still a 

long way from accomplishing what was envisioned with the passage of the 

CFO Act of 1990 and the more recent passage of FFMIA in 1996. 
Page 6 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 2: Problems Reported by Auditors for Fiscal Years 2001 through 2005 

In an effort to comply with FFMIA and 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, to upgrade existing systems, or to 

move to a shared service provider. Agencies anticipate that the new 

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

decision making. However, significant problems in the development and 

implementation of new financial management systems were reported for 

several agencies in fiscal year 2005, especially when agencies did not 
Page 7 GAO-06-970 FFMIA Fiscal Year 2005 Results 

follow appropriate best practices to ensure the efficient and effective 

implementation of these systems. 

OMB continues to move forward on initiatives that support the President’s 

Management Agenda (PMA) to enhance financial management and provide 

results-oriented information in the federal government. A key initiative has 

been the further development of the financial management line of business 

to promote leveraging shared service solutions to enhance the 

government’s performance and services. However, challenges exist in 

implementing the financial management line of business. For example, as 

we reported in March 2006,6

 the requirements for agencies and private 

sector firms to become shared service providers and the services they 

must provide have not been adequately documented or effectively 

communicated to agencies and the private sector. OMB has not provided 

the current selected shared service providers with standard document 

templates needed to minimize risk, provide assurance, and develop 

understandings with customers on topics such as service-level 

agreements7

 and a concept of operations. Further, processes have not 

been put in place to facilitate agency decisions on selecting a provider or 

focusing investment decisions on the benefits of standard processes and 

shared service providers. We made a number of recommendations to 

address these issues and OMB has projects under way to develop standard 

business processes, a common accounting code, and specific measures to 

assess the performance of the shared service providers to help address 

some shortcomings. Because the federal government is one of the largest, 

most complex organizations in the world, operating, maintaining, and 

modernizing its financial management systems represents a monumental 

challenge—from both cost and technical perspectives. As pressure mounts 

to increase accountability and efforts to reduce federal spending intensify, 

sustained and committed leadership will be a key factor in the successful 

implementation of governmentwide initiatives. 

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

reaffirm our prior recommendations 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 

 6

GAO, Financial Management Systems: Additional Efforts Needed to Address Key Causes 

of Modernization Failures, GAO-06-184 (Washington, D.C.: Mar. 15, 2006). 

7

A service-level agreement is critical for both the shared service providers and the agencies 

to be held accountable for their respective parts of the agreement. 
Page 8 GAO-06-970 FFMIA Fiscal Year 2005 Results 

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

compliance with the requirements of FFMIA and (2) explore further 

clarification of the definition of “substantial compliance” to encourage 

consistent reporting. 

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

that many federal agencies still need to make improvements to generate 

more accurate and timely financial information to optimize day-to-day 

operations. As in previous years, we and OMB have differing views on the 

level of audit assurance necessary for assessing and reporting on 

compliance with FFMIA. While OMB commended Labor’s auditors for 

taking the steps needed to provide positive assurance and encouraged 

similar efforts at other agencies, it stated that requiring a statement of 

positive assurance for all agencies was not necessary. We continue to 

believe that a statement of positive assurance is a statutory requirement 

under the act and will continue to work with OMB on this issue. OMB did 

agree to consider clarifying the definition of “substantial compliance” in its 

future policy and guidance updates. Our detailed evaluation of OMB’s 

comments can be found at the end of this letter. 

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

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

the Federal Managers’ Financial Integrity Act of 19828

 (FMFIA), which the 

Congress passed to strengthen internal controls and accounting systems 

throughout the federal government, among other purposes. Issued 

pursuant to 31 U.S.C. § 3512 (c), (d), still commonly known as FMFIA, the 

Comptroller General’s Standards for Internal Control in the Federal 

Government9 provides the standards that are 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 FMFIA is synonymous 

with management control, helps government program managers achieve 

desired results through effective stewardship of public resources. 

 8

Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982) (codified at 31 U.S.C. § 3512 (c), (d)). 

9

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

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

Background 
Page 9 GAO-06-970 FFMIA Fiscal Year 2005 Results 

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 activities being used are effective and updated when necessary. 

While agencies had achieved some early success in identifying and 

correcting material internal control and accounting system weaknesses, 

their efforts to implement FMFIA had not produced the results intended 

by the Congress. 

Therefore, in the 1990s, the Congress passed additional management 

reform legislation to improve the general and financial management of the 

federal government. This legislation includes 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 (6) Accountability of Tax Dollars Act of 2002,13 (7) Improper 

Payments Information Act of 2002,14 and (8) Department of Homeland 

Security (DHS) Financial Accountability Act of 2004.15 The combination of 

reforms ushered in by these laws, if successfully implemented, provides a 

solid foundation to improve the accountability of government programs 

and operations as well as to routinely produce valuable cost and operating 

performance information. These financial management reform acts 

emphasize the importance of improving financial management across the 

federal government. 

In particular, building on the foundation laid by the CFO Act, FFMIA 

emphasizes the need for CFO Act agencies to have systems that are able to 

generate reliable, useful, and timely information for decision-making 

 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). 

13Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002) (codified at 31 U.S.C. § 3515). The 

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 requirements. 

14Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). 

15Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 16, 2004). 
Page 10 GAO-06-970 FFMIA Fiscal Year 2005 Results 

purposes and to ensure ongoing accountability. 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,16 and (3) the SGL17 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 these three FFMIA systems requirements. 

Appendixes I through IV include details on the various requirements and 

standards that support federal financial management. 

OMB establishes governmentwide financial management systems policies 

and requirements and has issued two sources of guidance related to 

FFMIA reporting. First, OMB Bulletin No. 01-02, Audit Requirements for 

Federal Financial Statements, dated October 16, 2000, prescribed audit 

requirements, including specific language auditors should use when 

reporting on an agency system’s substantial compliance with the three 

FFMIA requirements. Specifically, this guidance called for auditors to 

provide negative assurance when reporting on an agency system’s FFMIA 

compliance. On August 23, 2006, OMB issued Bulletin No. 06-03, Audit 

Requirements for Federal Financial Statements, which superseded OMB 

Bulletin No. 01-02. The new bulletin did not substantially revise OMB’s 

FFMIA audit guidance contained in Bulletin No. 01-02. 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 substantially comply with 

FFMIA’s three requirements. Further, the guidance provides examples of 

the types of indicators that should be used as a basis for assessing whether 

an agency’s systems are in substantial compliance with each of the three 

FFMIA requirements. Finally, the guidance discusses the corrective action 

 16The 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 appendix I. 

17The SGL provides a standard chart of accounts and standardized transactions that 

agencies are to use in all their financial systems. 

Guidance for FFMIA 

Issued by OMB 
Page 11 GAO-06-970 FFMIA Fiscal Year 2005 Results 

plans, to be developed by agency officials, for bringing their systems into 

compliance with FFMIA. 

We have worked in partnership with representatives from the President’s 

Council on Integrity and Efficiency18 (PCIE) to develop and maintain the 

joint GAO/PCIE Financial Audit Manual (FAM). The FAM provides 

specific procedures auditors should perform when assessing FFMIA 

compliance.19 As detailed in appendix V, we have also issued a series of 

checklists to help assess whether agencies’ systems meet systems 

requirements. The FAM guidance on FFMIA assessments recognizes that 

while financial statement audits offer some assurance on 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, accounting standards, and the SGL. 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. Further, OMB’s current 

audit guidance20 calls for financial statement auditors to review 

performance information for consistency with the financial statements, 

but does not require auditors to determine whether this information is 

available to managers for day-to-day decision making as called for by the 

FAM guidance for testing compliance with FFMIA. 

 18The PCIE—which is governed by Executive Order No. 12805 of May 11, 1992—was 

established to (1) address integrity, economy, and effectiveness issues that transcend 

individual government agencies and (2) increase the professionalism and effectiveness of 

inspectors general personnel throughout the government. The PCIE is composed primarily 

of the presidentially appointed inspectors general. Officials from OMB, the Federal Bureau 

of Investigation, Office of Government Ethics, Office of Special Counsel, and Office of 

Personnel Management serve on the PCIE as well.

19GAO-01-765G, sections 701, 701A, 701B, and 260.58-.60. 

20OMB Bulletin No. 06-03, Audit Requirements for Federal Financial Statements (Aug. 23, 

2006). 

Financial Audit Manual 

Section on FFMIA 

Developed by GAO and the 

President’s Council on 

Integrity and Efficiency 
Page 12 GAO-06-970 FFMIA Fiscal Year 2005 Results 

We reviewed the fiscal year 2005 financial statement audit reports for the 

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

financial systems’ compliance and the problems that affect FFMIA 

compliance. Prior experience with the auditors and our review of their 

reports provided the basis for determining the sufficiency and relevancy of 

evidence provided in these documents. Based on their audit reports, we 

identified reported problems that affect agency systems’ compliance with 

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

our work at a number of 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 identified all instances of noncompliance with 

systems requirements and included all problems in their reports. We also 

met with OMB officials to discuss their current efforts to improve federal 

financial management and address our prior recommendations related to 

FFMIA. 

In addition, we performed site visits to 12 agencies to assess the amount 

and type of FFMIA-related work being performed by the independent 

public auditors. The agencies selected for visits included the 5 agencies 

where auditors provided negative assurance of FFMIA compliance in fiscal 

year 2005 (Commerce, Environmental Protection Agency (EPA), National 

Science Foundation (NSF), Office of Personnel Management (OPM), and 

Social Security Administration (SSA)); the agency where auditors provided 

an opinion, or positive assurance, of FFMIA compliance in fiscal year 2005 

(Labor); the 2 agencies where auditors provided negative assurance of 

FFMIA compliance in fiscal year 2004 but reported those agencies as 

noncompliant in fiscal year 2005 (the Department of Energy (Energy) and 

the General Services Administration (GSA)); and 421 of the agencies with 

the largest net costs as reported in the fiscal year 2005 Financial Report of 

the United States Government.

22 We also met with representatives for the 

Inspector General of the Department of Defense (DOD), which has the 

largest net costs of any federal agency in fiscal year 2005, to confirm our 

understanding of its FFMIA-related audit procedures. 

 21The Department of Agriculture, Department of Health and Human Services (HHS), 

Department of the Treasury, and the Department of Veterans Affairs (VA). 

22Department of the Treasury, 2005 Financial Report of the United States Government 

(Washington, D.C.: Dec. 2005). 

Scope and 

Methodology 
Page 13 GAO-06-970 FFMIA Fiscal Year 2005 Results 

We conducted our work from January 2006 through July 2006 in 

Washington, D.C., Baltimore, Md., and Kansas City, Mo., in accordance 

with U.S. generally accepted government auditing standards. We requested 

written comments on a draft of this report from the Director of OMB or his 

designee. We received written comments from the OMB controller. OMB’s 

comments are discussed in the Agency Comments and Our Evaluation 

section and reprinted in appendix VI. We also received technical 

comments from OMB and the Departments of Health and Human Services 

and Transportation which we incorporated as appropriate. 

While the 24 CFO Act agencies have made demonstrable progress in 

producing auditable financial statements and progress in addressing their 

financial management systems weaknesses since the passage of FFMIA, 

about three-fourths are still not substantially compliant with FFMIA’s 

three requirements. In contrast, the number of CFO Act agencies receiving 

unqualified opinions on their financial statements has increased 

significantly since 1997, when FFMIA reporting began. In fiscal year 1997, 

11 of the CFO Act agencies attained unqualified opinions on their financial 

statements, while 1923 agencies received unqualified opinions in fiscal year 

2005. As shown in figure 3, the ability of federal financial management 

systems to address FFMIA requirements has not advanced at the same 

pace. In fiscal year 1997, 20 agencies were reported as having systems that 

were not in substantial compliance with at least one of the three FFMIA 

systems requirements. In fiscal year 2005, auditors for 18 of the CFO Act 

agencies reported that the agencies’ financial management systems do not 

substantially comply with at least one of the three FFMIA requirements. 

 23For fiscal year 2005, 18 of 24 CFO Act agencies were able to attain unqualified opinions on 

their financial statements by the November 15, 2005, reporting deadline established by 

OMB. The independent auditor of the Department of State subsequently withdrew its 

qualified opinion on the department’s fiscal year 2005 financial statements and reissued an 

unqualified opinion on these financial statements dated December 14, 2005. As a result, 19 

CFO Act agencies received unqualified opinions on their fiscal year 2005 financial 

statements. 

FFMIA Assessments 

Identify Continuing 

Systems Weaknesses 
Page 14 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 1997 through 2005 

Auditors’ assessments for three agencies changed from fiscal year 2004 to 

2005. For fiscal year 2005, auditors for OPM were able to provide negative 

assurance that OPM’s financial management systems, as a whole, were 

substantially compliant with FFMIA’s three requirements. Conversely, 

auditors for Energy and GSA reported that those agencies’ financial 

management systems did not substantially comply with FFMIA 

requirements in fiscal year 2005, but had not reported any FFMIA 

compliance issues at those federal agencies in fiscal year 2004. At Energy, 

the auditors indicated that Energy’s systems problems stemmed from the 

implementation of a new accounting system. At GSA, the auditors reported 

recently identified internal control weaknesses over financial reporting. In 

addition, consistent with the DHS Financial Accountability Act of 2004,24

which added DHS to the list of CFO Act agencies, DHS’s auditors reported 

that the department’s financial management systems did not substantially 

comply with any of the three FFMIA requirements for fiscal year 2005. 

 24The DHS Financial Accountability Act, Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 16, 2004). 
Page 15 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 4 summarizes auditors’ assessments of agencies’ compliance with 

the three requirements of FFMIA for fiscal years 1997 through 2005 and 

suggests that the instances of noncompliance with FFMIA’s three 

requirements have remained fairly constant. In particular, in fiscal year 

2005, auditors for eight agencies25 reported that their agencies’ systems 

were not in substantial compliance with any of the three FFMIA 

requirements—federal financial management systems requirements, 

applicable federal accounting standards, or the SGL at the transaction 

level. 

 25The Departments of Agriculture, Defense, Homeland Security, Justice, Transportation, 

and Treasury, the National Aeronautics and Space Administration, and the Small Business 

Administration. 
Page 16 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 4: Auditors’ Assessments of Substantial Compliance with FFMIA’s Three Requirements for Fiscal Years 1997 through 

2005 

While substantially more CFO Act agencies have obtained clean or 

unqualified audit opinions on their financial statements, we are concerned 

over the number of CFO Act agencies that have restated certain of their 

financial statements. As we have previously reported,26 a number of CFO 

Act agencies have restated certain of their financial statements over the 

 26GAO, Financial Audit: Restatements to the Department of State’s Fiscal Year 2003 

Financial Statements, GAO-05-814R (Washington, D.C.: Sept. 20, 2005); Financial Audit: 

Restatements to the Nuclear Regulatory Commission’s Fiscal Year 2003 Financial 

Statements, GAO-06-30R (Washington, D.C.: Oct. 27, 2005); Financial Audit: Restatements 

to the General Services Administration’s Fiscal Year 2003 Financial Statements, 

GAO-06-70R (Washington, D.C.: Dec. 6, 2005); Financial Audit: Restatements to the 

National Science Foundation’s Fiscal Year 2003 Financial Statements, GAO-06-229R 

(Washington, D.C.: Dec. 22, 2005); and Financial Audit: Restatements to the Department 

of Agriculture’s Fiscal Year 2003 Financial Statements, GAO-06-254R (Washington, D.C.: 

Jan. 26, 2006). 
Page 17 GAO-06-970 FFMIA Fiscal Year 2005 Results 

past few years to correct for material errors. Errors in financial statements 

result from mathematical mistakes, mistakes in the application of 

accounting principles, or oversight or misuse of facts that existed at the 

time the financial statements were prepared. Generally, these restatements 

resulted from weaknesses in internal control over the processing and 

reporting of certain transactions and inadequate audit procedures to 

detect these errors. The auditors for the seven agencies that restated their 

financial statements in fiscal year 2005 also reported that the agencies’ 

financial systems had not met FFMIA requirements. Further, restatements 

raise questions about the reliability of other information in previously 

issued financial statements and indicate a continuing lack of improvement 

in the underlying agency financial systems. Frequent restatements to 

correct errors can undermine public trust and confidence in both the 

entity and all responsible parties. 

In fiscal year 2005, auditors for five agencies (Commerce, EPA, NSF, OPM, 

and SSA) provided negative assurance that the agencies’ systems were 

compliant with FFMIA requirements. The auditor for one agency, Labor, 

provided positive assurance on FFMIA compliance. From our perspective, 

FFMIA requires auditors to provide positive assurance, which is an 

opinion, because section 803 (b)(1) of FFMIA requires auditors to “report 

whether the agency financial management systems comply with the 

requirements of [the act].” Auditors provide negative assurance when they 

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

planned procedures to indicate that the agency’s financial management 

systems did not meet FFMIA requirements. Under generally accepted 

government auditing standards, there are no requirements to perform 

additional testing beyond that needed for a financial statement audit for an 

auditor to give negative assurance. However, if financial statement users 

are not familiar with the concept of negative assurance, which we believe 

is generally the case, they may incorrectly assume that these five agencies’ 

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

achieved FFMIA compliance. In addition, testing that is not sufficient to 

support an opinion also means that an area of noncompliance may be 

missed; therefore, the number of problems in a particular category may be 

even greater than auditors’ reports of FFMIA noncompliance would 

suggest, because not all problems are being included. Although OMB’s 

current audit guidance27 instructs auditors to test for compliance with 

 27OMB Bulletin No. 06-03, Audit Requirements for Federal Financial Statements (Aug. 23, 

2006).

Auditors Mostly Provide 

Negative Assurance on 

FFMIA Compliance 
Page 18 GAO-06-970 FFMIA Fiscal Year 2005 Results 

FFMIA, it does not provide guidance on the nature and extent of tests to 

be performed. It only calls for auditors to provide negative assurance 

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

with the three FFMIA requirements. We did note greater attention to 

assessing FFMIA compliance at the agencies we visited. Auditors at 8 of 

the 12 CFO Act agencies visited prepared and used a separate audit 

program to assess FFMIA compliance. Auditors stated that separate 

FFMIA audit programs were developed to ensure consistency and to share 

best practices among their audit teams. 

In fiscal years 2005 and 2004, auditors for Labor provided positive 

assurance of Labor’s financial management systems’ compliance with 

FFMIA requirements. For both years, Labor’s Inspector General 

contracted with an independent public accounting firm to conduct the 

financial statement audit and included a provision to specifically perform 

an FFMIA examination in accordance with American Institute of Certified 

Public Accountants attestation standards.28 In general, providing positive 

assurance of FFMIA compliance requires auditors to perform more audit 

procedures than those needed to render an opinion on the financial 

statements. While financial statement audits in general will offer some 

assurance on FFMIA compliance, auditors should also design and 

implement additional testing to satisfy the criteria in FFMIA. For example, 

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 agency financial statements. In 

contrast, assessing FFMIA compliance involves determining whether an 

agency’s financial management systems 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. For fiscal year 2005, Labor’s independent auditor 

performed transaction testing, provided FAM Section 700 training to audit 

team members, analyzed whether financial management systems provided 

reliable and timely financial information for managing current operations 

to senior management and program managers, and completed the audit 

procedures provided in FAM 701A and associated Joint Financial 

Management Improvement Program (JFMIP) checklists for each operating 

 28Generally accepted government auditing standards incorporate the American Institute of 

Certified Public Accountants (AICPA) general standard on criteria, its field work standards, 

and its reporting standards for attestation engagements, as well as the AICPA Statements 

on Standards for Attestation Engagements, unless the Comptroller General of the United 

States excludes them by formal announcement. 
Page 19 GAO-06-970 FFMIA Fiscal Year 2005 Results 

division. The auditor estimated that the cost of the additional procedures 

needed to provide positive assurance was between $50,000 and $80,000. 

The efforts of Labor to perform the level of review necessary to provide 

positive assurance of FFMIA compliance in fiscal years 2005 and 2004 are 

noteworthy, and we look forward to other agencies adopting similar 

auditing and reporting practices. 

Performing audit procedures designed to provide positive assurance of an 

agency’s financial management systems’ compliance with FFMIA 

requirements can identify weaknesses and lead to improvements that 

enhance the performance, productivity, and efficiency of federal financial 

management systems. It also provides a clear “bottom line,” whereas 

negative assurance does not. Therefore, as we have discussed in prior 

reports covering fiscal years 2000 through 2004,29 we continue to believe 

that our prior recommendation for OMB to require agency auditors to 

provide a statement of positive assurance when reporting an agency’s 

systems to be in substantial compliance with the three FFMIA systems 

requirements is still appropriate. Given OMB’s explicit instruction to 

provide negative assurance, some auditors also indicated that a change in 

OMB’s guidance on FFMIA reporting would be necessary in order for them 

to provide an opinion on FFMIA compliance. 

In a recent discussion with OMB officials, as well as OMB’s comments on a 

draft of this report and our prior FFMIA reports, OMB continues to 

support the requirement for negative assurance of FFMIA compliance. 

While OMB agrees that testing should occur, and its guidance on FFMIA 

calls for it, it does not specify the nature and extent of audit procedures. 

OMB officials continue to express the belief that the level of testing 

needed for positive assurance may be too time-consuming and costly. 

OMB officials said that different, more coordinated approaches toward 

assessing an agency’s internal controls and FFMIA compliance could 

provide sufficient assurance on an agency’s systems. We share concerns 

about the added cost, but want to make our view quite clear that the focus 

needs to be on the ultimate end goal of having financial management 

 29GAO, 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); Financial Management: Sustained Efforts Needed to Achieve FFMIA 

Accountability, GAO-03-1062 (Washington, D.C.: Sept. 30, 2003); Financial Management: 

Improved Financial Systems Are Key to FFMIA Compliance, GAO-05-20 (Washington, 

D.C.: Oct. 1, 2004); and Financial Management: Achieving FFMIA Compliance Continues 

to Challenge Agencies, GAO-05-881 (Washington, D.C.: Sept. 20, 2005). 
Page 20 GAO-06-970 FFMIA Fiscal Year 2005 Results 

systems able to routinely produce reliable, useful, and timely financial 

information. Until such systems exist, the ability of federal managers to 

effectively manage and oversee their major programs was and continues to 

be restricted. 

In its comments, OMB emphasized that its PMA and financial management 

line of business initiatives, along with the strengthened internal control 

requirements incorporated into the revised OMB Circular No. A-123, are 

helping agencies to identify and correct FFMIA deficiencies. We agree 

these initiatives can drive systems improvements and support OMB’s 

leadership in this area. Our concern lies in the fact that 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 as 

called for in the act. When reporting an agency’s financial management 

systems to be in substantial compliance, positive assurance from 

independent auditors will provide users with confidence that the agency 

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

the act. 

As we have previously reported, a number of auditors we interviewed 

expressed a need for clarification on the definition of “substantial 

compliance.” In fiscal year 2005, auditors for 7 of the 12 agencies we 

visited stated that additional guidance on the definition of substantial 

compliance would be useful. As a result, we reiterate our previous 

recommendation that OMB explore clarifying the definition of “substantial 

compliance” to meet the needs of the auditing community and to allow for 

consistent application of the doctrine. 

In addition, 8 of the 12 independent auditors cited a need for additional 

guidance to assist them in assessing whether agency systems substantially 

comply with the three FFMIA requirements. For example, at SSA, the 

auditors reported a need for clearer guidance from OMB on assessing 

FFMIA compliance that is consistent with the GAO/PCIE FAM. Auditors 

for other agencies we visited professed a need for (1) more clearly defined 

and objective criteria to assist in their determination of FFMIA 

compliance, (2) more specific guidance on testing and sampling 

methodologies, and (3) additional guidance for assessing compliance with 

certain accounting standards, such as the Statement of Federal Financial 

Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting 

Concepts and Standards for the Federal Government. In its comments, 

OMB stated that its growing experience helping agencies implement the 

Additional FFMIA 

Guidance Needed 
Page 21 GAO-06-970 FFMIA Fiscal Year 2005 Results 

PMA enables it to refine the existing FFMIA indicators associated with 

substantial compliance. Accordingly, OMB said it would consider our 

recommendation in any future policy and guidance updates. 

Audit reports for the 18 agencies reported to have systems not in 

substantial compliance with one or more of FFMIA’s three requirements 

during fiscal year 2005, again identified the same six primary reasons for 

noncompliant agency systems. They ranged from serious, pervasive 

systems problems to less serious problems that may affect only 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 5 shows the relative frequency of these problems at the agencies 

reported to have noncompliant systems. The same six types of problems 

have been cited by auditors in the fiscal years 2001 through 2004 audit 

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

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

three FFMIA requirements. In addition, we caution that the occurrence of 

problems in any particular category may be even greater than auditors’ 

reports of FFMIA noncompliance would suggest because auditors may not 

have identified all problems during the reviews. 

Reasons for 

Noncompliance 
Page 22 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 5: Problems Reported by Auditors for Fiscal Years 2001 through 2005 
Page 23 GAO-06-970 FFMIA Fiscal Year 2005 Results 

The CFO Act calls for agencies to develop and maintain integrated 

accounting and financial management systems30 that comply with federal 

systems requirements and provide 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 (3) the integration of accounting, budgeting, and program 

information. OMB Circular No. A-127, Financial Management Systems, 

requires agencies to establish and maintain a single integrated financial 

management system that conforms to functional requirements issued by 

the Financial Systems Integration Office (FSIO),31 formerly the Joint 

Financial Management Improvement Program (JFMIP). More details on 

the financial management systems requirements can be found in 

appendixes I and II. 

The lack of integrated financial management systems typically results in 

agencies expending 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 devote more time 

and 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 integrated financial 

management systems in their fiscal year 2005 audit reports. As shown in 

figure 5, auditors for 13 of the 18 agencies with noncompliant systems 

reported this to be a problem, compared with 12 of the 16 agencies 

reported with noncompliant systems in fiscal year 2004. For example, 

 30Federal 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. OMB Circular No. A127, Financial Management Systems, paragraph 7(b) (Revised Dec. 1, 2004). 

31The FSIO was formerly known as the Joint Financial Management Improvement Program 

(JFMIP) staff office. In December 2004, the JFMIP Principals voted to modify the roles and 

responsibilities of the JFMIP Program Office, now FSIO. The FSIO Executive reports to 

OMB’s Office of Federal Financial Management Controller. See OMB, Update on the 

Financial Management Line of Business and the Financial Systems Integration Office, 

Memorandum (Washington, D.C.: Dec. 16, 2005). 

Nonintegrated Financial 

Management Systems 
Page 24 GAO-06-970 FFMIA Fiscal Year 2005 Results 

auditors for the Department of Housing and Urban Development (HUD) 

reported that HUD has not been in compliance with FFMIA, in part due to 

the lack of an integrated financial management system, since fiscal year 

1997, when reports under the act were first required. As a result, HUD has 

had to rely on extensive ad hoc analyses and special projects to produce 

account balances and disclosures. The auditors further reported that 

HUD’s most significant system challenges exist at the Federal Housing 

Administration (FHA), which continues to conduct some day-to-day 

business operations with legacy-based systems, thereby limiting its ability 

to integrate the financial processing environment, although the auditors 

noted that FHA is making progress in achieving compliance with federal 

financial system requirements. Consequently, according to the HUD Office 

of Inspector General, since HUD’s existing core financial system could be 

better integrated, more user-friendly, and less costly to maintain, HUD 

management is proceeding with plans to develop and implement a modern 

financial management system through the HUD Integrated Financial 

Management Improvement Project. 

At DHS, auditors reported that the financial management systems for 

Immigration and Customs Enforcement (ICE) and the U.S. Coast Guard 

lack appropriate integration. Specifically, DHS auditors reported that ICE 

had not successfully integrated the accounting processes of the five DHS 

components for which it became responsible in fiscal year 2004. Auditors 

also noted that ICE continued to operate unreliable processes and 

procedures that support accounting and financial reporting, resulting in 

material errors, irregularities, and abnormal balances in the DHS 

consolidated financial statements that existed for most of fiscal year 2004 

and continued unresolved in fiscal year 2005. As a result, auditors reported 

that ICE’s financial systems were inadequate to process financial 

transactions for the five DHS components. Further, auditors for the Coast 

Guard reported that the financial reporting process was complex and 

labor-intensive with a significant number of adjustments being made 

outside the core accounting system. In addition, Coast Guard officials had 

to perform a significant amount of manual review in order to integrate 

data from three separate general ledger systems. As a result, the auditors 

found that DHS was unable to prepare a consolidated financial statement 

for fiscal year 2005 until November 2005 and that the consolidated 

financial statement disclosures and notes contained critical errors and 

inconsistencies that required material adjustments to correct. 

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 

Inadequate Reconciliation 

Procedures 
Page 25 GAO-06-970 FFMIA Fiscal Year 2005 Results 

adequate reconciliations because data are being 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 Government highlight reconciliation as a key 

control activity. 

As shown in figure 5, auditors for 14 of the 18 agencies with noncompliant 

systems reported that the agencies had reconciliation problems, including 

a number of agencies that could not reconcile their Fund Balance with 

Treasury (FBWT) accounts with the Department of the Treasury’s 

(Treasury) records, compared with 11 of the 16 agencies reported with 

noncompliant systems in fiscal year 2004. Treasury policy requires 

agencies to reconcile their accounting records with Treasury records 

monthly (comparable to individuals reconciling their personal checkbooks 

to their monthly bank statements). 

As a case in point, in fiscal year 2005, the auditor for GSA reported 

instances of improper reconciliation procedures that contributed to errors 

in financial reporting. Specifically, the auditor noted that differences 

between budgetary account balances in various GSA subsystems and the 

core financial management system had not been reconciled, nor had 

proper budgetary account reconciliation procedures been developed. 

These weaknesses inhibit GSA management’s ability to detect and prevent 

budgetary accounting and reporting misstatements. Further, the auditors 

noted that GSA continued to lack adequate controls for reconciling 

intragovernmental balances. As a result, GSA has developed extensive 

manual workarounds and used estimates to determine the break down of 

revenue and receivables for DOD—the largest customer of GSA’s Federal 

Acquisition Service. For example, as of June 30, 2005, GSA was unable to 

assign $582 million in unidentified receivable transactions to a specific 

department within DOD and therefore simply allocated this difference 

among the Department of the Army, Department of the Navy, and the 

Department of the Air Force. Proper reconciliation procedures would 

allow GSA to resolve these types of unidentified transactions, identify 

material out-of-balance conditions between federal entities, assist in the 

preparation of governmentwide financial statements, help ensure that 

intra-governmental balances are properly eliminated in the 

governmentwide financial statements, and provide some level of 

assurance that balances have been accurately and appropriately recorded. 
Page 26 GAO-06-970 FFMIA Fiscal Year 2005 Results 

As shown in figure 5, auditors for 17 of 18 agencies with noncompliant 

systems reported the lack of accurate and timely recording of financial 

information as a problem for fiscal year 2005, compared with 16 of 16 

agencies reported with noncompliant systems in fiscal year 2004. 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 an accurate and timely manner is 

critical for key governmentwide initiatives, such as integrating budget and 

performance information. 

In contrast, lack of timely 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 for the Department of Health and Human Services (HHS) noted 

that one of the monthly reports prepared by the Program Support Center 

to reconcile the general ledger with Treasury’s records has lost its 

usefulness due to old and invalid items that remain in the general ledger. 

Specifically, they identified differences with an absolute value of 

approximately $5.5 billion, in part due to transactions dating back to as 

early as 1993. In addition, the auditors noted that 53 of 105 reconciliations 

selected for review were not completed within HHS’s allotted 30-day 

deadline—several taking up to 84 days to complete. Finally, the auditors 

identified more than 32,000 grants with net obligation balances of 

approximately $2.3 billion that were eligible to be closed. Many of those 

grants have been eligible for closure for several years. As a result of these 

and other problems, more than 270 entries with an absolute value of more 

than $208 billion were recorded outside the general ledger system. The 

auditors noted that the majority of these entries could have been 

eliminated by more timely analyses and reconciliations, as well as 

improved estimation methodologies. 

As shown in figure 5, auditors for 11 of the 18 agencies with noncompliant 

systems reported that the agencies’ systems did not comply with SGL 

requirements for fiscal year 2005, compared with 11 of the 16 agencies 

reported with noncompliant systems in fiscal year 2004. FFMIA 

specifically requires federal agencies to implement the SGL at the 

transaction level. Using the SGL promotes consistency in financial 

transaction processing and reporting by providing a uniform chart of 

accounts and pro forma transactions and provides a basis for comparison 

at the agency and governmentwide levels. The defined accounts and pro 

Lack of Accurate and Timely

Recording of Financial 

Information 

Noncompliance with the SGL 
Page 27 GAO-06-970 FFMIA Fiscal Year 2005 Results 

forma transactions standardize the accumulation of agency financial 

information as well as enhance financial control and support financial 

statement preparation and other external reporting. 

A lack of adherence to the SGL impedes the ability of the federal 

government to complete accurate, governmentwide financial statements. 

For example, auditors for the Small Business Administration (SBA) noted 

that certain accounting transactions were not recorded, processed, 

summarized, or reported in accordance with the SGL. Specifically, the 

auditors found that the SBA used improper rules to record a transaction, 

resulting in a subsidy account having a zero balance, while an expense 

account was misstated by $58 million. SBA also incorrectly characterized 

$30.5 million as a decrease in borrowing authority instead of an actual 

repayment of debt. Finally, the department used improper posting logic in 

preparing budget pro forma data, resulting in various overstatements and 

understatements totaling $24.2 million. 

Moreover, by not implementing the SGL, agencies may experience 

difficulties in providing consistent financial information across their 

components and functions. For example, auditors for the Department of 

Justice (DOJ) found that DOJ does not substantially comply with the SGL, 

in part due to noncompliance issues at the Federal Bureau of Investigation 

(FBI) and the United States Marshals Service (USMS). Specifically, the 

auditors noted that the FBI’s financial management systems do not permit 

use of the SGL at the transaction level, in that certain transactions are 

processed outside of the core system and then must be recorded into the 

core system through a manual or automated batch transaction process. 

Further, USMS does not maintain transaction-level detail for upward and 

downward adjustments of prior-year undelivered orders and does not use 

an appropriate liability account, as called for by the SGL. 

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

systems account for transactions in accordance with federal accounting 

standards; however, agencies continue to face significant challenges in 

implementing these standards. As shown in figure 5, auditors for 11 of the 

18 agencies with noncompliant systems reported that these agencies had 

problems complying with one or more federal accounting standards for 

fiscal year 2005, compared with 11 of the 16 agencies reported with 

noncompliant systems in fiscal year 2004. Appendixes III and IV list the 

federal financial accounting standards and other guidance issued by the 

Federal Accounting Standards Advisory Board and its Accounting and 

Auditing Policy Committee, respectively. The purpose of these standards 

and other guidance is to ensure that federal agencies’ financial reports 

Lack of Adherence to Federal 

Accounting Standards 
Page 28 GAO-06-970 FFMIA Fiscal Year 2005 Results 

provide users with understandable, relevant, and reliable information 

about the financial position, activities, and results of operations of the U.S. 

government and its components. 

Auditors expressly reported compliance problems with 11 specific 

accounting standards in fiscal year 2005. Of those standards, the 3 that 

were most troublesome for agencies were SFFAS No. 1, Accounting for 

Selected Assets and Liabilities; SFFAS No. 4, Managerial Cost 

Accounting Concepts and Standards for the Federal Government; and 

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

particular, SFFAS No. 4, which became effective in 1998 and requires the 

use of managerial cost accounting information in the decision-making 

process, continues to be difficult for federal managers to fully implement. 

As we recently reported,32 the Department of Transportation (DOT) has in 

recent years shown strong leadership in developing managerial cost 

accounting systems both departmentwide and at the individual component 

agencies. For example, according to DOT officials, the Federal Aviation 

Administration—DOT’s largest component agency—has completed the 

initial implementation of a managerial cost accounting system. Several 

other DOT component agencies are also implementing detailed costing 

and billing systems to meet their cost accounting needs. However, DOT 

management reported that it will be several years before cost accounting 

data systems are fully mature and include historical data that will allow 

DOT managers to integrate performance and accounting information. As a 

result, DOT managers will not know the full costs associated with their 

programs and activities, which could impair their decision-making 

abilities. 

Accurate and timely cost management information is critical for federal 

managers to transform how government agencies manage the business of 

government and vital in developing meaningful links between budget, 

accounting, and performance. Starting in July 2005, we performed a series 

 32 GAO, Managerial Cost Accounting Practices: Departments of Education, 

Transportation, and the Treasury, GAO-06-301R (Washington, D.C.: Dec. 19, 2005). 
Page 29 GAO-06-970 FFMIA Fiscal Year 2005 Results 

of congressional briefings and issued corresponding reports33 concerning 

the status of managerial cost accounting activities at several large federal 

agencies, including Labor, Education, HHS, DOT, SSA, Treasury, and 

Veterans Affairs (VA). We found that generally these agencies have 

experienced uneven success in the implementation of managerial cost 

accounting and that managerial cost accounting-related internal controls 

within the agencies need to be strengthened. We also identified strong 

upper-level management support and leadership as a key component in 

the successful implementation of managerial cost accounting and 

promotion of managerial cost accounting information departmentwide. 

Information security weaknesses are a major concern for federal agencies 

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

noncompliance with FFMIA. As shown in figure 5, auditors for 16 of the 18 

agencies with noncompliant systems reported security weaknesses in 

information systems to be a problem, compared with 15 of the 16 agencies 

reported with noncompliant systems in fiscal year 2004. 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. 

Since 1997, we have considered information security to be high-risk area 

at a governmentwide level. 

For example, the Department of Agriculture (Agriculture) and its 

component agencies accelerated their efforts during fiscal year 2005 to 

comply with the federal information security requirements; however, even 

though progress was made, the auditors noted that several material 

security weaknesses still exist. The weaknesses identified include an 

unreliable certification and accreditation process and ineffective controls 

in the general control environment, as well as weaknesses in controls over 

physical and logical access, inventory of systems and network equipment, 

 33GAO, Managerial Cost Accounting Practices: Leadership and Internal Controls Are Key 

to Successful Implementation, GAO-05-1013R (Washington, D.C.: Sept. 2, 2005); 

Managerial Cost Accounting Practices: Departments of Labor and Veterans Affairs, 

GAO-05-1031T (Washington, D.C.: Sept. 21, 2005); Managerial Cost Accounting Practices: 

Departments of Education, Transportation, and the Treasury, GAO-06-301R (Washington, 

D.C.: Dec. 19, 2005); and Managerial Cost Accounting Practices: Department of Health 

and Human Services and Social Security Administration, GAO-06-599R (Washington, 

D.C.: Apr. 18, 2006). 

Weak Security Controls over 

Information Systems 
Page 30 GAO-06-970 FFMIA Fiscal Year 2005 Results 

effective policies and procedures, and vulnerability scanning34 and 

mitigation. The auditors noted that these departmental weaknesses have a 

significant impact on the integrity, confidentiality, and availability of 

systems and data. 

The recent information security breaches at Agriculture, VA, and other 

agencies compromised the personal data of millions of U.S. citizens and 

highlighted the importance of adequate system security policies and 

programs. Robust federal security programs are critically important to 

properly protect personal and financial information and the privacy of 

individuals. On June 20, 2006, we reported35 on a number of actions that 

agencies can take to help guard against the possibility that databases of 

personally identifiable information are inadvertently compromised. We 

noted that a key step is to develop a privacy impact assessment—an 

analysis of how personal information is collected, stored, shared, and 

managed—whenever information technology is used to process personal 

information. In addition, agencies can take more specific practical 

measures aimed at preventing data breaches, including limiting the 

collection of personal information, limiting the time that these data are 

retained, limiting access to personal information and training personnel 

accordingly, and considering the use of technological controls, such as 

encryption, when data need to be stored on portable devices. On June 23, 

2006, OMB issued a memorandum36 focusing on the protection of 

information that is being accessed remotely or physically transported 

outside an agency’s secured location. Federal agencies are required to 

implement guidance developed by the National Institute of Standards and 

Technology for the protection of remote information. In addition, OMB 

recommends that all agencies implement additional safeguards, including 

data encryption and proper user authentication procedures for the remote 

access of data. 

 34A vulnerability is the existence of a flaw or weakness in hardware or software that can be 

exploited resulting in a violation of an implicit or explicit security policy. Vulnerability 

scanners are software applications that can be used to identify vulnerabilities on computer 

hosts and networks. 

35GAO, Information Security: Leadership Needed to Address Weaknesses and Privacy 

Issues at Veterans Affairs, GAO-06-897T (Washington, D.C.: June 20, 2006). 

36OMB, Protection of Sensitive Agency Information, M-06-16 (Washington, D.C.: June 23, 

2006). 
Page 31 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Unresolved information security weaknesses can also compromise the 

reliability and availability of data recorded in or transmitted by an agency’s 

financial management system. As a case in point, in fiscal year 2005, 

auditors for Treasury noted that the general controls over the 

department’s computer systems did not effectively prevent unauthorized 

access to and disclosure of sensitive information, unauthorized changes to 

systems and application software, and unauthorized access to programs 

and files that control computer hardware and secure applications. In 

particular, weaknesses we reported37 in information security controls at 

the Internal Revenue Service (IRS) could result in unauthorized 

individuals being able to access, alter, or abuse proprietary IRS programs 

and electronic data and taxpayer information. The auditors noted that a 

key reason for Treasury’s information security weaknesses was that the 

department had not yet fully implemented an agencywide information 

security program to ensure that controls were effectively established and 

maintained. They further reported that Treasury’s information security 

programs and practices needed additional improvements to adequately 

protect the information systems that support the department’s operations. 

Agencies have a number of efforts under way to address their existing 

financial management systems problems. Recent efforts to modernize 

financial management systems have often exceeded budgeted costs, 

resulted in delays in delivery dates, and not provided the anticipated 

system functionality and performance. The key for federal agencies to 

avoid the long-standing problems that have plagued financial management 

system improvement efforts is to address the foremost causes of those 

problems and adopt solutions that reduce the risks associated with these 

efforts to acceptable levels. Our March 2006 report38 discusses in detail the 

key causes of past financial management system implementation failures, 

the significant governmentwide initiatives currently under way, and 

actions that can be taken to improve the management and control of 

agency financial management system modernization efforts. The report 

also highlights some of the issues we identified with OMB’s financial 

management line of business initiative and includes actions that would 

help reduce the risks associated with financial management system 

 37GAO, Tax Administration: IRS Improved Some Filing Season Services, but Long-term 

Goals Would Help Manage Strategic Trade-offs, GAO-06-51 (Washington, D.C.: Nov. 14, 

2005). 

38GAO-06-184. 

Federal Financial 

Management System 

Initiatives Continue to 

Evolve 
Page 32 GAO-06-970 FFMIA Fiscal Year 2005 Results 

implementation efforts. In a related initiative, OMB established the FSIO to 

address some of the responsibilities of the former JFMIP Program 

Management Office, which was realigned in December 2004. OMB will 

provide oversight and guidance to FSIO on priorities and expected 

performance, in consultation with the FSIO Transformation Team of the 

CFO Council. Further, OMB’s December 2004 revision of Circular No. A123, Management’s Responsibility for Internal Control, which was 

effective for fiscal year 2006, is intended to strengthen requirements for 

conducting management’s assessment of internal control over financial 

reporting. Through these various initiatives, OMB is taking action to 

improve financial management in the federal government. However, 

establishing good financial management throughout the federal 

government will also require changing the organizational culture of some 

federal agencies; therefore, the sustained leadership and support of the 

Congress has been and continues to be essential to the reform of financial 

management in the federal government. 

Across government, agencies have many efforts under way to implement 

new financial management systems or to upgrade existing systems that 

may help improve FFMIA compliance. However, these efforts far too often 

result in systems that do not meet their cost, schedule, and performance 

goals. While agencies anticipate that the new systems will provide reliable, 

useful, and timely data to support managerial decision making, our work 

and that of others has shown that has often not been the case. For 

example, modernization efforts at Energy, HHS, DOD, and Treasury have 

been hampered by agencies not following best practices in systems 

development and implementation efforts (commonly referred to as 

disciplined processes). 

• According to Energy’s independent auditor,39 Energy implemented a 

new financial accounting system in April 2005, shortly after 

reorganizing and consolidating its finance and accounting services 

organization in October 2004. At the same time, Energy also adopted a 

new chart of accounts in conjunction with the new accounting system. 

Prior to 2005, Energy’s auditors had consistently provided negative 

assurance that the financial management systems were in compliance 

with FFMIA; however, the reorganization and consolidation adversely 

affected the financial accounting staffing levels and skills mix 

 39KPMG, Independent Auditor’s Report (Washington, D.C.: Nov. 9, 2005). 

Adherence to Best 

Practices Is Critical to 

Successful Modernization 

Initiatives 
Page 33 GAO-06-970 FFMIA Fiscal Year 2005 Results 

throughout the department and Energy did not complete corrective 

actions to address these weaknesses. As a result, in the process of 

implementing the new system, Energy encountered a number of 

problems involving data conversion, reconciliation, posting, and 

reporting. Energy’s auditor specifically noted problems in accounting 

for obligations, monitoring budget execution and control, reconciling 

integrated contractor trial balances with departmental records, 

reconciling accounting system modules to the general ledger, resolving 

various posting errors, and identifying and reporting intragovernmental 

transactions. The auditor also noted that, after the implementation of 

the new system, many reports needed for management, internal 

control, and audit purposes were no longer available. These problems 

hindered the department’s ability to assure the accuracy and 

completeness of data needed for audit testing and it was unable to 

provide the accurate and supportable financial statements required for 

audit. As a result, Energy’s auditors issued a disclaimer on the fiscal 

year 2005 financial statements and concluded that the financial 

management systems did not substantially comply with federal 

financial management systems requirements and federal accounting 

standards. 

• As part of its modernization effort, HHS developed plans to reduce the 

number of financial management systems from five to two using the 

Unified Financial Management System (UFMS). This system is 

expected to integrate the HHS financial management structure to 

provide more timely and consistent information and to promote the 

consolidation of accounting services throughout HHS. On the basis of 

our fiscal year 2004 review of UFMS,40 we reported that HHS had not 

effectively implemented the best practices needed to reduce the risks 

associated with the implementation of a new system. Specifically, we 

reported that the UFMS implementation project was schedule driven 

rather than event driven based on effectively implemented disciplined 

processes, with limited time devoted to critical steps in the system 

development life cycle. We also stated that data conversion and system 

interface challenges were critical to the ultimate success of UFMS. In 

April 2005, HHS deployed the core financial portion of UFMS at the 

Centers for Disease Control and Prevention (CDC) and the Food and 

Drug Administration (FDA). Subsequently, auditors at HHS reported 

 40GAO, Financial Management Systems: Lack of Disciplined Processes Puts 

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

Sept. 23, 2004). 
Page 34 GAO-06-970 FFMIA Fiscal Year 2005 Results 

problems with the implementation process at CDC and FDA.41

Specifically, they stated that HHS experienced significant challenges in 

resolving issues with the system conversion and implementation, 

including configuration issues, insufficient resources, inadequate 

training, and limited report capability of financial and budget activity 

within the system. Furthermore, the auditors noted that UFMS, as 

currently configured, cannot produce financial statements. Therefore, 

FDA and CDC used cumbersome processes to crosswalk the 

unadjusted trial balance to the financial statements and to record 

thousands of nonstandard accounting entries both prior and 

subsequent to the UFMS conversion. For example, FDA recorded about 

14,000 nonstandard accounting entries totaling an absolute value of 

approximately $9.4 billion to create the September 30, 2005, financial 

statements. In addition, CDC had to record (1) accounting entries 

totaling an absolute value of approximately $11.3 billion either to its 

financial statements or those of another HHS operating division; 

(2) adjustments totaling an absolute value of about $24.4 billion, related 

to conversion, data cleanup, corrections, account reclassifications, and 

other adjustments to conform to UFMS processing; and (3) an 

approximately $19.1 billion absolute value adjustment to the database 

used to generate financial statements as a result of conversion 

adjustments made in UFMS that could not be extracted into the 

database. The auditors reported that HHS management continues to 

develop and implement corrective actions to improve its 

implementation of UFMS, develop internal controls, train personnel, 

and develop necessary reports, policies, and procedures; however, they 

noted that sustained efforts will be necessary to overcome the 

seriousness of the weaknesses noted. 

• According to DOD management, the department’s inability to comply 

materially with FFMIA is primarily the result of structural problems 

related to legacy accounting systems that do not accurately account for 

both budgetary and proprietary activities.42 Quite simply, according to 

DOD management, the department does not have the systems and 

accounting structures in place to achieve compliance with FFMIA. We 

have reported that DOD has historically been unable to develop and 

implement business systems on time, within budget, and with the 

 41Ernst & Young, Report of Independent Auditors (Washington, D.C.: Nov. 11, 2005). 

42Department of Defense, FY 2005 Performance and Accountability Report (Washington, 

D.C.: Nov. 15, 2005). 
Page 35 GAO-06-970 FFMIA Fiscal Year 2005 Results 

promised capability. For example, in September 2005, we reported43

that the Department of the Navy spent approximately $1 billion for four 

largely failed pilot Enterprise Resource Planning (ERP) system44

efforts, without marked improvement in its day-to-day operations. 

Although the pilots used the same ERP commercial off-the-shelf 

software, inconsistencies in the design and implementation resulted in 

them not being interoperable. Furthermore, if there had been effective 

project management oversight of the pilot programs at the outset, there 

would not have been a need to, in essence, start over. The Navy now 

has a new ERP project under way, which early Navy estimates indicate 

will cost another $800 million. While the new project, as currently 

envisioned, has the potential to address some of the Navy’s financial 

management weaknesses, it will not provide an all-inclusive end-to-end 

corporate solution for the Navy. For example, the current scope of the 

ERP does not provide for real-time asset visibility of shipboard 

inventory, which has been and continues to be a long-standing problem 

within the department. Further, there are still significant challenges 

and risks ahead as the project moves forward, such as developing and 

implementing 44 system interfaces with other Navy and DOD systems 

and converting data from legacy systems to the ERP system. In 

addition, the Navy does not have in place the structure to capture 

quantitative data that can be used to assess the effectiveness of the 

overall effort and has not established an independent verification and 

validation function. 

• The ability to prepare the consolidated financial statements of the U.S. 

government (CFS) has been a long-standing challenge for Treasury’s 

Financial Management Service. To address some of the internal control 

weaknesses identified in our audit report,45 Treasury began developing 

the Governmentwide Financial Report System (GFRS). The goal of this 

new system is to directly link information from federal agencies’ 

audited financial statements to amounts reported in the CFS. We 

 43GAO, DOD Business Systems Modernization: Navy ERP Adherence to Best Business 

Practices Critical to Avoid Past Failures, GAO-05-858 (Washington, D.C.: Sept. 29, 2005). 

44An ERP solution is an automated system using commercial off-the-shelf software 

consisting of multiple, integrated functional modules that perform a variety of businessrelated tasks such as payroll, general ledger accounting, and supply chain management. 

45Department of the Treasury, 2005 Financial Report of the United States Government 

(Washington, D.C.: Dec. 2005). 
Page 36 GAO-06-970 FFMIA Fiscal Year 2005 Results 

found46 that Treasury had not yet effectively implemented the 

disciplined processes necessary to provide reasonable assurance that 

GFRS will meet its performance, schedule, and cost goals. Specifically, 

Treasury had not (1) developed a concept of operations or any other 

document that adequately defines or documents the expected 

performance of GFRS, (2) developed a detailed project plan and 

schedule through completion of GFRS, (3) developed a budget 

justification for GFRS as called for in OMB Circular No. A-11,47 and 

(4) implemented the disciplined processes necessary to effectively 

manage the GFRS project. These deficiencies have contributed to the 

various usability problems encountered by its users. Going forward, it 

will be important for Treasury to better mitigate its risks so that longstanding internal control weaknesses regarding the preparation of the 

CFS can be eliminated and, more importantly, so that Treasury ends up 

with a system that fully meets its and agencies’ needs. 

In addition to the examples above, our March 2006 report48 summarizes 

many of the agencies’ financial management system implementation 

failures that have been previously reported by us and agency inspectors 

general. In our report, we identified several problems related to agencies’ 

implementation of financial management systems in three recurring and 

overarching themes: disciplined processes, human capital management, 

and other information technology (IT) management practices. Key causes 

of failure within each area are identified in table 1. Although the 

implementation of any major system will never be a risk-free proposition, 

organizations that follow and effectively implement disciplined processes, 

along with effective human capital and other IT management practices, 

can reduce the risks of financial management system modernization 

efforts to acceptable levels. 

 46GAO, Financial Management Systems: Lack of Disciplined Processes Puts Effective 

Implementation of Treasury’s Governmentwide Financial Report System at Risk, 

GAO-06-413 (Washington, D.C.: Apr. 21, 2006). 

47Section 300 of OMB Circular No. A-11, Preparation, Submission, and Execution of the 

Budget (Nov. 2, 2005), set forth requirements for federal agencies for planning, budgeting, 

acquiring, and managing information technology capital assets. 

48GAO-06-184. 
Page 37 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Table 1: Key Causes of Systems Implementation Failure 

Disciplined processes 

Human capital 

management Other IT management 

Requirements management Strategic workforce planning Enterprise architecture 

Testing Human resources Investment management 

Data conversion and system 

interfaces 

Change management Information security 

Risk management 

Project management 

Source: GAO analysis and inspectors general reports. 

To help address financial management systems’ weaknesses and 

implementation failures and to support the President’s Management 

Agenda goal to expand electronic government, OMB launched the 

financial management line of business in March 2004. The financial 

management line of business was one of five original lines of business that 

were initiated to develop business-driven, common solutions for specific 

lines of business that extend across the entire federal government. OMB 

and designated agency lines of business task forces plan to use enterprise 

architecture-based principles and best practices to identify common 

solutions for business processes, technology-based shared services, or 

both, to be made available to government agencies. The original five lines 

of business were financial management, human resources management, 

grants, federal health architecture, and case management.49 These lines of 

business share similar business requirements and processes. In March 

2005, OMB started a task force to address a sixth line of business on IT 

security. As introduced in the President’s fiscal year 2007 budget proposal, 

three new lines of business initiatives will join the six existing lines of 

business. The three new lines of business are IT infrastructure 

optimization, geospatial, and budget formulation and execution.50

 49Case management involves managing claims or investigations including creating, routing, 

tracing, assigning and closing a case, as well as collaboration among case handlers. 

50In March 2006, OMB launched task forces to conduct governmentwide analysis for the 

three new lines of business based on an analysis of the fiscal year 2007 budget that shows 

significant opportunities for improvement in sharing common information technology 

infrastructure, geospatial data and capabilities, and budgeting processes and functions 

across government. 

Goals for the Financial 

Management Line of 

Business Have Been 

Established 
Page 38 GAO-06-970 FFMIA Fiscal Year 2005 Results 

The financial management line of business initiative promotes leveraging 

shared service solutions to enhance the government’s performance and 

services, such as establishing shared service providers to consolidate 

financial management activities for major agencies. Under this initiative, 

OMB developed an approach for competitively migrating financial 

management systems to a limited number of shared service providers, 

including OMB designated federal shared service providers, or private 

sector entities.51 As part of the fiscal year 2006 budget process, in February 

2005 OMB designated four federal agencies52 as governmentwide financial 

management shared service providers. OMB evaluated business cases 

submitted by agencies using a due diligence checklist and selected the 

four agencies to be shared service providers. Three of the agencies have 

had significant experience providing financial management services to 

other small federal entities. 

OMB has indicated that other agencies may also serve as shared service 

providers in the future, but has not yet established any limits or targets on 

the number of providers to be designated. Although there have been 

subsequent requests by agencies and departments to become shared 

services providers, as of September 2006, OMB has not designated any 

new providers beyond the four original service providers previously 

selected. According to OMB’s Migration Planning Guidance that was 

issued in September 2006, OMB has encouraged private sector providers 

that can satisfy the shared services requirements to participate in the 

procurement process for these services. Agencies are responsible for 

determining, through competition, if a private sector shared service 

provider meets the financial management line of business requirements. 

OMB officials told us they may consider the designation of these providers 

in the future. 

In a December 2005 memorandum53 to agency CFOs, OMB provided an 

update on the financial management line of business. The memorandum 

 51OMB has not designated any private sector entities as shared service providers, but may 

consider doing so in the future. 

52The four agencies designated as shared service providers were the Department of the 

Interior (National Business Center), General Services Administration (Federal Integrated 

Solutions Center), Department of the Treasury (Bureau of the Public Debt’s Administrative 

Resource Center), and Department of Transportation (Enterprise Services Center). 

53OMB, Update on the Financial Management Line of Business and the Financial 

Systems Integration Office, Memorandum (Washington, D.C.: Dec. 16, 2005). 
Page 39 GAO-06-970 FFMIA Fiscal Year 2005 Results 

explained that the overall vision of the financial management line of 

business (as depicted in fig. 6) is to improve the cost, quality, and 

performance of financial management systems by leveraging shared 

service solutions and implementing other governmentwide reforms that 

foster efficiencies in federal financial operations. The memorandum also 

stated that the goals of the financial management line of business include 

• providing timely and accurate data for decision-making; 

• facilitating stronger internal controls that ensure integrity in 

accounting and other stewardship activities; 

• reducing costs by providing a competitive alternative for agencies to 

acquire, develop, implement, and operate financial management 

systems through shared service solutions; 

• standardizing systems, business processes, and data elements; and 

• providing for seamless data exchange between and among federal 

agencies by implementing a common language and structure for 

financial information and system interfaces. 
Page 40 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 6: Overall Vision of the Financial Management Line of Business 

OMB stated, in the December 2005 memorandum, that federal agencies 

have begun implementing the financial management line of business 

initiative by actively migrating to shared service providers and initiating 

solutions to integrate financial data among and between agency business 

Improved performance of

financial system solutions

(agency and govt.-wide) — timely

and accurate data for decisions;

lower risk and cost; 

improved stewardship

and accounting

A limited number of high

performing and stable shared

service providers that offer

competitive alternative

for Federal agencies

Performance

Measures

Standard quality and

cost measures for agencies

to benchmark and compare

performance of financial

system alternatives

Migration Planning

Guidance

Menu of services

offered by COEs; rules of

engagement; comparing

public vs. private solutions;

human capital implications

Standard Business

Processes, Rules,

and Data Elements

Core financial functions

such as payables,

receivables, funds control

Common

Accounting

Code

Uniform standard

structure, layout,

definitions

Financial data easily compared and 

aggregated across agencies;

reduced cost and risk of

establishing interfaces between

agency business systems

Competitive

Environment

Transparency Standardization 

Seamless Data

Integration

Results

Source: Office of Management and Budget.
Page 41 GAO-06-970 FFMIA Fiscal Year 2005 Results 

systems. In August 2005, OPM was the first CFO Act agency to announce 

its plans to move to a designated shared service provider. In addition, in 

March 2006, Labor awarded a 5-year contract to a private sector firm to 

provide financial management hosting and operation and maintenance 

services, which includes hardware, software, and other services. As part of 

its best-value determination, EPA was also considering the designated 

shared service providers as well as private sector providers for software, 

integration, and hosting and plans to award its contract no later than the 

first quarter of fiscal year 2007. Moreover, DHS officials testified in March 

2006,54 that rather than acquiring, configuring, and implementing a new 

system within DHS, they recognized the opportunity to leverage 

investments that have already been made, both within DHS and at OMBdesignated shared service providers. 

OMB noted that nothing in the December 2005 memorandum changes the 

expectations that agencies will continue to take all the necessary steps (in 

the earliest possible time frames) to meet the financial management line of 

business goals. OMB stated that it had instituted a policy that agencies 

seeking to modernize their financial systems must either be designated as 

a public shared service provider or must migrate to a shared service 

provider (public, private, or a combination of both). However, exceptions 

will be made in limited situations when an agency demonstrates 

compelling evidence of a best value and lower risk alternative. It is OMB’s 

intent to avoid investments in “in-house” solutions wherever possible so 

that the shared service framework can fully achieve potential and 

anticipated returns. 

We have long supported and called for initiatives to standardize and 

streamline common systems, which can reduce costs and, if done 

correctly, improve accountability. Likewise, OMB has correctly recognized 

that enhancing the government’s ability to implement financial 

management systems that are capable of providing accurate, reliable, and 

timely information on the results of operations needs to be addressed as a 

governmentwide solution, rather than individual agency stove-piped 

efforts designed to meet a given entity’s needs. However, this is a 

significant change in how agencies acquire new system capacity and raises 

numerous complex issues that have far-reaching implications for the 

 54DHS, Information Technology Investments and the Future of the eMerge2 Program 

(Washington, D.C.: Mar. 29, 2006). 

Challenges and 

Implications in 

Implementing the 

Financial Management 

Line of Business 
Page 42 GAO-06-970 FFMIA Fiscal Year 2005 Results 

government and private sector shared service providers. As we reported in 

March 2006,55 OMB has not yet fully defined and implemented the 

processes necessary to successfully complete the financial management 

line of business initiative. 

OMB has been proactive since the beginning of the financial management 

line of business initiative in making speeches, discussing the initiative with 

the media, including it in the President’s budget request, highlighting it on 

its Web site, and issuing draft guidance. Until recently there were limited 

tools and guidance available. In our March 2006 report,56 we found, for 

example, that the requirements for agencies and private sector firms to 

become shared service providers and the services that they must provide 

have not been adequately documented or effectively communicated to 

agencies and the private sector. In addition, OMB had not provided shared 

service providers with standard document templates needed to minimize 

risk, provide assurance, and develop understandings with customers on 

topics such as service-level agreements and a concept of operations. We 

made a number of recommendations to address these issues, and OMB has 

been taking steps to address them. For example, in May 2006, OMB issued 

an initial competition framework57 and draft Migration Planning Guidance 

that was circulated to agencies and the public for comment and included 

some of this important information. The Migration Planning Guidance 

issued in September 2006 included change management best practices and 

templates for service level agreements and project plans, among other 

items. As explained later, FSIO plays a key role in developing the guidance 

to move the financial management line of business forward. 

OMB has stated that agencies will consistently meet cost, schedule, and 

performance goals when implementing new financial management 

systems once the financial management line of business is fully realized. 

However, agencies’ financial management system problems may not all be 

solved by moving to a shared service provider and this may actually create 

additional problems if agencies put less focus on their risk management 

and financial management efforts. In addition, there may be some 

misconception that moving to a shared service provider would guarantee 

 55GAO-06-184. 

56GAO-06-184. 

57See OMB Memorandum, Competition Framework for Financial Management Lines of 

Business Migrations (May 22, 2006), for the initial Competition Framework which will be 

incorporated into the Migration Planning Guidance. 
Page 43 GAO-06-970 FFMIA Fiscal Year 2005 Results 

an agency of getting a clean audit opinion and being compliant with 

FFMIA. There are a number of factors that affect FFMIA compliance, 

including the quality of transaction data in agency feeder systems, the 

success of converting data from legacy systems, and the interaction of 

people, process, and technology within an agency’s environment. 

In March 2006,58 we reported that careful consideration of the following 

four concepts, each one building upon the next, would be integral to the 

success of OMB’s initiatives and could help break the cycle of failure in 

implementing financial management systems. The four concepts were 

(1) developing a concept of operations, (2) defining standard business 

processes, (3) developing a strategy for ensuring that agencies migrate to a 

limited number of service providers in accordance with OMB’s stated 

approach, and (4) defining and effectively implementing disciplined 

processes necessary to properly manage the specific projects. Because 

these issues have not been addressed, a firm foundation to address the 

long-standing problems that have impeded success has not yet been 

established. 

A concept of operations would help provide the foundation for the 

financial management line of business. An effective concept of operations 

would describe, at a high level, (1) how all of the various elements of 

federal financial systems and mixed systems relate to each other and 

(2) how information flows from and through these systems. A concept of 

operations would provide a useful tool to explain how financial 

management systems at the agency and governmentwide levels can 

operate cohesively. It would be geared to a governmentwide solution 

rather than individual agency stove-piped efforts. Because the federal 

government has lacked such a document, a clear understanding of the 

interrelationships among federal financial systems and how the shared 

service provider concept fits into this framework has not yet been 

achieved. 

Standard business processes are critical to implementing the financial 

management line of business and need to be defined and communicated to 

all federal agencies. Standard business processes promote consistency and 

provide the framework for agencies and shared service providers. OMB 

officials recognize that standardization is important and are developing a 

standard set of business processes in four areas: funds control, accounts 

 58GAO-06-184. 
Page 44 GAO-06-970 FFMIA Fiscal Year 2005 Results 

payable, accounts receivable, and financial reporting. As illustrated 

previously in figure 6, OMB is also developing a common accounting code 

that may help address some of this lack of standardization. According to 

OMB officials, OMB also has other initiatives under way to develop 

standard interfaces for feeder systems such as acquisitions. While these 

are positive steps, there are numerous other areas where standardization 

is important, such as inventory, supplies, and material management as well 

as the loan management areas. Absent this standardization, shared service 

providers have been designated without common business rules and 

potential customer agencies continue to implement and operate individual 

stove-piped systems that may require additional work to adopt these 

processes. 

To maximize the success of a new system acquisition, organizations need 

to consider the redesign of current business processes. As we noted in our 

Executive Guide: Creating Value Through World-class Financial 

Management,

59 leading finance organizations have found that productivity 

gains typically result from more efficient processes, not from simply 

automating old processes. In the past, agencies have resisted change and 

failed to develop transition plans, reengineer business processes, and limit 

customization. Agencies may continue to resist change and this approach 

for outsourcing their financial management systems because of the 

perceived (1) loss of control of their own data, (2) potential increase in 

costs with a decrease in the level of customer service and quality, 

(3) inability of providers to meet specific user needs, (4) loss of control to 

upgrade the system, and (5) negative effect on an agency’s individual 

employees. The shared service provider concept will still require that 

agencies address long-standing human capital problems by incorporating 

elements of strategic workforce planning such as aligning an 

organization’s human capital program with its current and emerging 

mission and programmatic goals, and developing long-term strategies for 

acquiring, developing, and retaining an organization’s total workforce to 

meet the needs of the future. 

A clear migration strategy for implementing the financial management line 

of business will be crucial. However, OMB has not articulated a clear and 

measurable strategy for achieving this goal. This is important because 

there has been a historical tendency for agencies and units within agencies 

 59GAO, Executive Guide: Creating Value Through World-class Financial Management, 

GAO/AIMD-00-134 (Washington, D.C.: April 2000). 
Page 45 GAO-06-970 FFMIA Fiscal Year 2005 Results 

to prefer internally developed processes and resist standardization. OMB’s 

general principle is that agencies should migrate to shared service 

providers when it is cost effective to do so and they have maximized the 

useful life and investment in the current system, which averages about 5 to 

7 years. According to OMB’s draft Migration Planning Guidance, it is 

anticipated that within 10 years all agencies will have decided whether to 

migrate their technology hosting and application management to a shared 

service provider, or will have become a shared service provider 

themselves. However, OMB does not plan to establish a specific migration 

path or time table for agencies to move to a shared service provider. It is 

not clear how this will impact the adoption of this initiative. Given the 

pressures to reduce budgets, instilling discipline with respect to following 

a clear migration path will be essential. Furthermore, without a clear 

migration path, while some agencies may readily migrate to a shared 

service provider to minimize the tremendous undertaking of implementing 

or significantly upgrading a financial system, other agencies will likely 

perpetuate the waste of taxpayer dollars previously described related to 

failed system implementation efforts. 

Whether agencies move to a shared service provider or implement their 

own systems, they must have disciplined processes (e.g., testing, 

requirements management, and risk management) in place to achieve the 

intended results within established resources on schedule. Effective 

implementation and testing processes are still required to ensure that the 

system delivers the desired functionality on time and within budget. 

Agencies have frequently struggled to implement key best practices when 

implementing commercial off-the-shelf financial management systems and 

relied too heavily on JFMIP testing and certification. A standard set of best 

practices will be needed to guide the migration from legacy systems to 

new systems and shared service providers. The Migration Planning 

Guidance is a good first step in stressing the importance of this standard 

set of best practices. 
Page 46 GAO-06-970 FFMIA Fiscal Year 2005 Results 

In accordance with a December 2004 memorandum,60 JFMIP 

responsibilities were realigned and the four JFMIP principals61 will 

continue to meet at their discretion to discuss major financial management 

issues. FSIO has been established with staff from the previous JFMIP 

program management office to address some of the former JFMIP 

responsibilities. According to a December 2005 OMB memorandum,62 the 

governance structure for financial management system initiatives gives 

FSIO direct responsibility for completing priority projects under the 

financial management line of business, such as developing the Migration 

Planning Guidance. As depicted in figure 7, OMB will provide oversight 

and guidance to FSIO on priorities and expected performance, in 

consultation with the FSIO Transformation Team of the CFO Council. 

According to OMB, the updated governance structure ensures that the 

FSIO, financial management line of business, and the FSIO Transformation 

Team do not operate in separate stovepipes. Responsibility for work 

products will now rest with FSIO where full-time dedicated staff including 

the FSIO Executive Director will be held accountable for achieving 

financial management line of business milestones. FSIO will coordinate 

the collection and expenditure of financial management line of business 

funds. 

 60OMB, Realignment of Responsibilities for Federal Financial Management Policy and 

Oversight, Memorandum (Washington, D.C.: Dec. 2, 2004). 

61The JFMIP principals are the Comptroller General of the United States, the Secretary of 

the Treasury, and the Directors of OMB and OPM. 

62OMB, Update on the Financial Management Line of Business and the Financial 

Systems Integration Office, Memorandum (Washington, D.C.: Dec. 16, 2005). 

Financial Systems 

Integration Office 

Established and Priorities 

Identified 
Page 47 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 7: Governance Structure 

OMB will continue its role as Executive Sponsor of the financial 

management line of business. In December 2005, FSIO moved from GSA’s 

Office of the Chief Financial Officer to the Office of Governmentwide 

Policy, Office of Technology Strategy (OTS). OMB named GSA the 

managing partner responsible for project management of the financial 

management line of business. Specifically, GSA’s responsibilities include 

organizing the work effort, involving the Federal CFO community in the 

initiative, and setting the schedule of priorities with input from Executive 

Steering Committee members selected from partner agencies. The 

Executive Steering Committee provides strategic direction and agency 

sponsorship, assists in priority setting, and approves partner agency 

resource contributions. The members of the committee meet quarterly or 

on an as-needed basis and are comprised of the FSIO Executive Director, 

six representatives from CFO Act agencies at the CFO or Deputy CFOlevel, a non-voting representative from OMB’s Office of E-Government and 

Source: Office of Management and Budget.

OMB

FSIO

CFOC - FSIO

Transformation Team

Software Performance/

Functionality

Development of Requirements Annual Financial Conference Performance Measures

Migration Planning Guidance

Standard Business Processes,

Rules, and Data Elements

Common Accounting Code

Testing and Certification Issues Resolution

CFO Community

Outreach FMLOB Activities
Page 48 GAO-06-970 FFMIA Fiscal Year 2005 Results 

a non-voting representative from OMB’s Office of Federal Financial 

Management. The members were selected from the CFO Act agencies to 

represent diverse perspectives in regards to size of agency, financial 

management technical platform, and migration status. 

The FSIO Transformation Team meets monthly and has a larger 

membership than the Executive Steering Committee, including agency 

representatives from all CFO Act agencies. The team functions as an 

advisory group to the Executive Steering Committee, manages the delivery 

of interdisciplinary work packages, and makes recommendations to the 

FSIO Executive Committee and the financial management line of business 

managing partner. The team is responsible for: (1) providing an internal 

review function for final work products, (2) providing recommendations 

to the financial management line of business project management office, 

and (3) continuously seeking to refine processes to increase the quality of 

and buy-in for their work products. 

In terms of mission and scope, FSIO has three major areas of 

responsibilities: (1) continuing its primary role of core financial system 

requirements development, testing, and certification; (2) providing support 

to the federal financial community by taking on special priority projects as 

determined by the OMB Controller, CFO Council, and the FSIO Executive 

Director; and (3) conducting outreach through an annual financial 

management conference sponsored by the JFMIP principals and other 

related activities. The projects that the FSIO undertakes will directly 

reflect the priorities of the CFO community and OMB. The priority 

projects to be undertaken in the near term will relate to the transparency 

and standardization initiatives of the financial management line of 

business, which were previously discussed and illustrated in figures 6 

and 7. 
Page 49 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Another key initiative for improving financial management in the federal 

government was OMB’s December 2004 revision of Circular No. A-123,63

which we support, and was effective at the start of fiscal year 2006.64

Financial systems weaknesses are frequently caused by a lack of adequate 

internal control within an agency. The revisions to OMB Circular No. A-123 

were intended to strengthen the requirements for conducting 

management’s assessment of internal control over financial reporting at 

CFO Act agencies. One major revision requires CFO Act agency 

management to annually provide a separate assurance statement on 

internal control over financial reporting in its performance and 

accountability report, along with a report on identified material 

weaknesses and corrective actions. The revision also establishes that OMB 

may, at its discretion, require a CFO Act agency to obtain an opinion on 

internal control over financial reporting. 

We view auditor opinions on internal control over financial reporting as an 

important component of monitoring the effectiveness of an entity’s risk 

management and accountability systems. OMB’s efforts to enhance 

Circular No. A-123 through the December 2004 revision and its continued 

efforts to improve the quality of internal control in the federal government 

financial management environment reflect substantial progress in both the 

criteria and expectations for this issue. As we point out in our recent 

report65 on this issue, because agencies are not uniformly ready for such 

audits, specific criteria to ascertain when an agency should initially be 

required to obtain an audit opinion on its internal control over financial 

reporting are critical to ensuring that the internal control audits fully 

contribute to the overarching goal of ongoing improvement in federal 

agency internal control and accountability. Additionally, implementing a 

multiyear cycle for an opinion on internal control over financial reporting 

could assist in mitigating the cost of the requirement while still providing 

an effective quality control mechanism for ascertaining that management’s 

assessment of its internal control is reliable. Although all of the benefits 

associated with obtaining an audit opinion on internal control are not 

 63OMB Circular No. A-123, Management’s Responsibility for Internal Control (revised Dec. 

2004). 

64GAO, Financial Management: Effective Internal Control Is Key to Accountability, 

GAO-05-321T (Washington, D.C.: Feb. 16, 2005). 

65GAO, Internal Control: Analysis of Joint Study on Estimating the Costs and Benefits of 

Rendering Opinions on Internal Control over Financial Reporting in the Federal 

Government, GAO-06-255R (Washington, D.C.: Sept. 6, 2006). 

Opinions on Internal 

Control May Further 

Strengthen New Internal 

Control Reporting 

Requirements 
Page 50 GAO-06-970 FFMIA Fiscal Year 2005 Results 

quantifiable in monetary terms, it is clear that having set criteria as to 

when an agency should initially be required to obtain an auditor opinion 

on internal control over financial reporting would be a key oversight 

mechanism for the Congress and ultimately the U.S. taxpayer. 

Sustained leadership will be key to a successful strategy for moving 

federal agencies towards consolidated financial management systems and 

FFMIA compliance. In our Executive Guide: Creating Value Through 

World-class Financial Management,

66 we found that leading organizations 

made financial management improvement an entitywide priority by, 

among other things, providing clear, strong executive leadership. We also 

reported that making financial management a priority throughout the 

federal government involves changing the organizational culture of federal 

agencies. Much work remains to develop a change management strategy to 

minimize the risk associated with the implementation of the financial 

management line of business initiative. Because the tenure of political 

appointees is relatively short, the current and future administrations must 

continue a strong emphasis on top-notch financial management. In 

addition, continued attention and oversight by the Congress is crucial to 

the success of these initiatives and federal financial management reform. 

The leadership and support demonstrated by the Congress have been and 

continue to be essential in the reform of financial management in the 

federal government. As previously discussed, the legislative framework 

provided by the CFO Act and FFMIA, among others, established a solid 

foundation to stimulate change needed to achieve sound financial systems 

management. Further, in October 2004, the Congress added DHS to the list 

of CFO Act agencies and thus subject to FFMIA in fiscal year 2005. 

Sustained congressional interest in these issues has been demonstrated by 

the number of hearings on federal financial management and reform held 

over the past several years. For example, hearings have recently been held 

on the financial management line of business initiative that provided a 

constructive discussion on some of the challenges inherent in such a large 

undertaking. It is critical that the various appropriations, budget, 

authorizing, and oversight committees hold agency top management 

accountable for resolving these problems and that the committees 

continue to support improvement efforts. 

 66GAO/AIMD-00-134. 

Sustained and Committed 

Leadership Is Key to 

Success for Financial 

Management Initiatives 
Page 51 GAO-06-970 FFMIA Fiscal Year 2005 Results 

The size and complexity of the federal government and the long-standing 

nature of its financial management systems weaknesses continues to 

present a formidable management challenge. Modernizing and improving 

financial management systems will require continued attention from the 

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

investment, and sustained emphasis on correcting these deficiencies to 

improve federal financial management systems to the level required by 

FFMIA. However, with concerted and coordinated effort, including 

attention from top agency management and the Congress, the federal 

government can make progress toward improving its financial 

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

provide accountability to the nation’s taxpayers. 

We continue to be concerned that the full nature and scope of the 

problems have not yet been identified because most auditors have only 

provided negative assurance in their FFMIA reports. We also 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 with FFMIA. A key benefit of 

providing positive assurance is that auditors will need to perform 

additional audit procedures in order to have a strong basis for definitively 

stating whether agencies’ financial management systems substantially 

comply with FFMIA’s three requirements. 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 have stated in prior reports,67 the 

auditors that we interviewed continue to express concerns about 

providing positive assurance in reporting on agency systems’ FFMIA 

compliance due to a perceived need for a clearer definition of substantial 

compliance. Further, some auditors that we interviewed stated that a 

change in OMB’s guidance on FFMIA reporting will be necessary in order 

for them to provide an opinion on FFMIA compliance. 

In written comments (reprinted in app. VI) on a draft of this report, OMB 

generally agreed with our assessment that while federal agencies continue 

to make progress in addressing financial management systems 

 67GAO-02-29, GAO-03-31, GAO-05-20, and GAO-05-881. 

Conclusions 

Agency Comments 

and Our Evaluation 
Page 52 GAO-06-970 FFMIA Fiscal Year 2005 Results 

weaknesses, many agencies still need to make improvements to produce 

the information needed to efficiently and effectively manage day-to-day 

operations. As in previous years, OMB did not see the necessity of our 

recommendation for agency auditors to provide a statement of positive 

assurance when reporting agency systems to be in substantial compliance 

with the requirements of FFMIA. While OMB commended Labor’s auditors 

for performing the additional level of audit work needed to provide 

positive assurance of compliance with FFMIA and encouraged similar 

efforts at other agencies, OMB stated that requiring a statement of positive 

assurance would prove only marginally useful. 

OMB stated that the goals of its various initiatives—the President’s 

Management Agenda (PMA), the Financial Management Line of Business 

(FMLOB), and the strengthened internal control requirements 

incorporated into the revised OMB Circular No. A-123, Management’s 

Responsibility for Internal Control—align with the goal of FFMIA to 

create the full range of information needed for day-to-day management. 

From OMB’s perspective, the broad scope of the PMA and the fundamental 

changes occurring under the FMLOB initiative, combined with the 

strengthened reporting requirements of Circular No. A-123, are helping 

agencies to identify and correct FFMIA deficiencies. 

While we agree that the PMA, FMLOB, and OMB Circular No. A-123 

initiatives are helping to drive improvements, auditors need to consider 

other aspects of financial management systems as well when assessing 

FFMIA compliance that are not fully addressed through the current 

reporting structure. 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. Our 

concern is that some of the information provided by this approach does 

not come under audit scrutiny and may not be reliable. Similarly, internal 

control assessments performed under Circular No. A-123 are based on 

management’s judgment and are subject to an opinion-level review by 

independent auditors only in limited circumstances. From our perspective, 

an opinion by an independent auditor on FFMIA compliance would 

confirm whether an agency’s systems substantially met the requirements 

of FFMIA and provide additional confidence in the information provided 

as a result of the PMA, FMLOB, and Circular No. A-123 initiatives. Finally, 

we continue to believe that 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 
Page 53 GAO-06-970 FFMIA Fiscal Year 2005 Results 

compliance, OMB said that the experience obtained from helping agencies 

implement the high standards incorporated in the PMA and the FMLOB 

will allow a further refinement of the FFMIA indicators associated with 

substantial compliance. Therefore, OMB agreed to consider clarifying the 

definition of “substantial compliance” in future policy and guidance 

updates. As we noted in our prior reports,68 auditors that we interviewed 

expressed a need for clarification regarding the meaning of substantial 

compliance; and in fiscal year 2005, auditors for 7 of the 12 agencies we 

visited stated that additional guidance on the definition of substantial 

compliance would be useful. 

OMB and the Departments of Health and Human Services and 

Transportation also provided technical comments, which we incorporated 

as appropriate. 

We are sending copies of this report to the Chairman and Ranking 

Minority Member, Subcommittee on Federal Financial Management, 

Government Information, and International Security, Senate Committee on 

Homeland Security and Governmental Affairs, and to the 

Chairman and Ranking Minority Member, Subcommittee on Government 

Management, Finance, and Accountability, House Committee on 

Government Reform. We are also sending copies to the Director of the 

Office of Management and Budget, the heads of the 24 CFO Act agencies in 

our review, and agency CFOs and Inspectors General. 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. 

 68GAO-02-29, GAO-03-31, GAO-05-20, and GAO-05-881. 
Page 54 GAO-06-970 FFMIA Fiscal Year 2005 Results 

This report was prepared under the direction of McCoy Williams, Director, 

Financial Management and Assurance, who may be reached at (202) 512-

9095 or williamsm1@gao.gov if you have any questions. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix VIII. 

David M. Walker 

Comptroller General 

of the United States 
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 55 GAO-06-970 FFMIA Fiscal Year 2005 Results 

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, administrative systems, and 

certain 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. Circular No. A-127 refers to the 

series of publications entitled Federal Financial Management Systems 

Requirements, initially issued by the Joint Financial Management 

Improvement Program’s (JFMIP) Program Management Office (PMO) as 

the primary source of governmentwide requirements for financial 

management systems. However, as of December 2004, the Financial 

Systems Integration Office (FSIO) assumed responsibility for coordinating 

the work related to federal financial management systems requirements 

and OMB’s Office of Federal Financial Management (OFFM) is responsible 

for issuing the new or revised regulations. In December 2004, the JFMIP 

Principals voted to modify the roles and responsibilities of JFMIP, 

resulting in the creation of FSIO. Appendix II lists the federal financial 

management systems requirements published to date. Figure 8 is the 

current model that illustrates how these systems interrelate in an agency’s 

overall systems architecture. 

 1

Core financial systems, as defined by the Office of Federal Financial Management (OFFM), 

include 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. 

Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Financial 

Management Systems 

Requirements 
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 56 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Figure 8: Agency Systems Architecture 

OMB establishes governmentwide financial management policies and 

requirements and has issued two sources of guidance related to FFMIA 

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

Financial Statements, dated October 16, 2000, prescribed specific 

language auditors should use when reporting on an agency system’s 

substantial compliance with the three FFMIA requirements. Specifically, 

this guidance called for auditors to provide negative assurance when 

reporting on an agency system’s FFMIA compliance. On August 23, 2006, 

OMB issued Bulletin No. 06-03, Audit Requirements for Federal Financial 

Statements, which superseded OMB Bulletin No. 01-02. This bulletin did 

not substantially revise the FFMIA audit guidance included in Bulletin No. 

01-02. 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 

FFMIA Guidance 

Seized property and

forfeited assets Travel

Human

resources

and payroll

Non-financial

Budget formulation

Revenue

Acquisition/

Property financial

management

Inventory

supplies and

materials

Grant

financial

Insurance

Benefit

Guaranteed

loan

Direct

loan

Managerial cost

accounting

Core

financial

Source: OMB, Core Financial Systems Requirements, OFFM-NO-0106 (Washington, D.C.: January 2006).
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 57 GAO-06-970 FFMIA Fiscal Year 2005 Results 

considered in determining whether an agency’s systems substantially 

comply with FFMIA’s three requirements. Further, the guidance provides 

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

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. 

We have worked in partnership with representatives from the President’s 

Council on Integrity and Efficiency (PCIE) to develop and maintain the 

joint GAO/PCIE Financial Audit Manual (FAM). The FAM provides 

specific procedures auditors should perform when assessing FFMIA 

compliance.3

 As detailed in appendix V, we have also issued a series of 

checklists to help assess whether agencies’ systems meet systems 

requirements. 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. 

OMB Circular No. A-127 also requires agencies to purchase commercial 

off-the-shelf (COTS) software that has been tested and certified through 

the PMO software certification process when acquiring core financial 

systems. However, in December 2004, OMB transferred the responsibility 

of certifying systems to FSIO as part of the realignment of JFMIP. The 

certification process 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, core 

financial systems certification does not mean that agencies that install 

these packages will have financial management systems that are compliant 

with FFMIA. Many other factors can affect the capability of the systems to 

comply with FFMIA, including modifications made to the FSIO-certified 

core financial management systems software and the validity and 

completeness of data from feeder systems. 

 3

GAO-01-765G, sections 701, 701A, 701B, and 260.58-.60. 
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 58 GAO-06-970 FFMIA Fiscal Year 2005 Results 

The Federal Accounting Standards Advisory Board (FASAB)4 promulgates 

federal accounting standards and concepts that agency chief financial 

officers use in developing financial management systems and preparing 

financial statements. FASAB develops the appropriate accounting 

standards and concepts 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 and concepts to the Comptroller General, the 

Director of OMB, the Secretary of the Treasury, and the Director of the 

Congressional Budget Office (CBO) for a 90-day review. If, within 90 days, 

neither the Comptroller General nor the Director of OMB objects to the 

standard or concept, then it is issued and becomes final. FASAB 

announces finalized concepts and standards in The Federal Register. 

The American Institute of Certified Public Accountants designated the 

federal accounting standards promulgated by FASAB as being generally 

accepted accounting principles for the federal government. This 

recognition enhances the acceptability of the standards, which form the 

foundation for preparing consistent and meaningful financial statements 

both for individual agencies and the government as a whole. Currently, 

there are 30 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, interpretations,6 and technical bulletins, 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 

and concepts for the federal government. Effective October 1, 2003, FASAB is comprised 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. 

Federal Accounting 

Standards 
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 59 GAO-06-970 FFMIA Fiscal Year 2005 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 

Bulletin No. 01-09, Form and Content of Agency Financial Statements

(Sept. 25, 2001), and Bulletin No. 01-02,8

Audit Requirements for Federal 

Financial Statements (Oct. 16, 2000). To date, AAPC has issued six 

technical releases, which are listed in appendix IV along with their release 

dates. 

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 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. 

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.9

Congress enacted legislation, 31 U.S.C. § 3512(c), (d) (commonly referred 

to as the Federal Managers’ Financial Integrity Act of 1982 (FMFIA)), to 

strengthen internal controls and accounting systems throughout the 

federal government, among other purposes. Issued pursuant to FMFIA, the 

Comptroller General’s Standards for Internal Control in the Federal 

Government10 provides standards that are directed at helping agency 

 7

In 1997, FASAB, in conjunction with OMB, Treasury, GAO, the Chief Financial Officers 

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

the federal government in improving financial reporting. 

8

 On August 23, 2006, OMB issued Bulletin No. 06-03, Audit Requirements for Federal 

Financial Statements. This bulletin did not substantially revise FFMIA audit guidance. 

9

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

Management Service is responsible for maintaining the SGL and answering agency 

inquiries. 

10GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3 

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

U.S. Government 

Standard General 

Ledger 

Internal Control 

Standards 
Appendix I: Requirements and Standards 

Supporting Federal Financial Management 

Page 60 GAO-06-970 FFMIA Fiscal Year 2005 Results 

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 FMFIA is synonymous 

with management control, helps government program managers achieve 

desired results through effective stewardship of public resources. 

In December 2004, OMB revised Circular No. A-12311 (effective beginning 

with fiscal year 2006) to strengthen the requirements for conducting 

management’s assessment of internal control over financial reporting. 

Significant revisions contained in Appendix A of the circular include 

requiring Chief Financial Officers (CFO) Act agency management to 

annually assess the adequacy of internal control over financial reporting, 

provide a report on identified material weaknesses and corrective actions, 

and provide a separate assurance statement on the agency’s internal 

control over financial reporting. In initiating the revisions, OMB cited the 

internal control requirements for publicly traded companies that are 

contained in section 404 of the Sarbanes-Oxley Act of 2002 (SarbanesOxley).12 Sarbanes-Oxley was enacted in response to corporate 

accountability failures of several years prior to its enactment and contains 

a provision (section 404) calling for management’s assessment of internal 

control over financial reporting similar to the long-standing requirements 

for executive branch agencies contained in FMFIA to issue annual 

statements of assurance over internal control in the agencies. Opinions on 

internal control over financial reporting as required by Sarbanes-Oxley for 

publicly traded companies are important to protect investors by improving 

the accuracy and reliability of corporate disclosures made pursuant to the 

securities laws. Regulators, public companies, audit firms, and investors 

generally agree that Sarbanes–Oxley has had a positive and significant 

impact on investor protection and confidence. 

 11OMB Circular No. A-123, Management’s Responsibility for Internal Control (revised 

 Dec. 21, 2004). 

12Pub. L. No. 107-204, § 404, 116 Stat. 745, 789 (July 30, 2002). 
Appendix II: Publications in the Federal 

Financial Management Systems Requirements 

Series 

Page 61 GAO-06-970 FFMIA Fiscal Year 2005 Results 

FFMSR document Issue date 

FFMSR-8 System 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 Assets 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-02-02 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-01-04 Framework for Federal Financial Management Systems April 2004 

OFFM-NO-0106 Core Financial System Requirements January 2006 

OFFM-NO-0206 Insurance System Requirements June 2006 

Source: OMB’s Office of Federal Financial Management (OFFM). 

Note: Effective December 1, 2004, all financial management system requirements documents and 

other guidance initially issued by the JFMIP were transferred to OFFM and remain in effect until 

modified. 

Appendix II: Publications in the Federal 

Financial Management Systems 

Requirements Series 
Appendix III: Statements of Federal Financial 

Accounting Concepts, Standards, 

Interpretations, and Technical Bulletins 

Page 62 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Concepts 

SFFAC No. 1Objectives 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 Effective for fiscal yeara

SFFAS No. 1 Accounting for Selected Assets and Liabilities 1994

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

SFFAS No. 3 Accounting for Inventory and Related Property 1994

SFFAS No. 4 Managerial Cost Accounting Concepts and Standards for the Federal Government 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 and Concepts for Reconciling 

Budgetary and Financial Accounting 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 

Statement of Federal Financial Accounting Standards No. 2 2001

SFFAS No. 19 Technical Amendments to Accounting Standards for Direct Loans and Loan 

Guarantees in Statement of Federal Financial Accounting Standards No. 2 2003

SFFAS No. 20 Elimination of Certain Disclosures Related to Tax Revenue Transactions by the Internal 

Revenue Service, Customs, and Others 2001

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 2006

Appendix III: Statements of Federal Financial 

Accounting Concepts, Standards, 

Interpretations, and Technical Bulletins 
Appendix III: Statements of Federal Financial 

Accounting Concepts, Standards, 

Interpretations, and Technical Bulletins 

Page 63 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Concepts 

SFFAC No. 1Objectives 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 Effective for fiscal yeara

SFFAS No. 26 Presentation of Significant Assumptions for the Statement of Social Insurance: 

Amending SFFAS 25 2006

SFFAS No. 27 Identifying and Reporting Earmarked Funds 2006

SFFAS No. 28 Deferral of the Effective Date of Reclassification of the Statement of Social Insurance: 

Amending SFFAS 25 and 26 2006

SFFAS No. 29 Heritage Assets and Stewardship Land 2006

SFFAS No. 30 Inter-Entity Cost Implementation Amending SFFAS 4, Managerial Cost Accounting 

Standards and Concepts 2009

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

Technical bulletins 

TB 2000-1 Purpose and Scope of FASAB Technical Bulletins and Procedures for Issuance 

TB 2002-1 Assigning to Component Entities Costs and Liabilities That Result From Legal Claims

Against the Federal Government 

TB 2002-2 Disclosures Required by Paragraph 79(g) of SFFAS 7, Accounting for Revenue and Other 

Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting 

TB 2003-1 Certain Questions and Answers Related to the Homeland Security Act of 2002 

Source: FASAB. 

a

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

Interpretations, and Technical Bulletins. 
Appendix IV: AAPC Technical Releases 

Page 64 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Technical release AAPC release date 

TR-1 Audit Legal Representation Letter Guidance March 1, 1998 

TR-2 Determining Probable and Reasonably Estimable for Environmental Liabilities in the Federal 

Government 

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 

Source: FASAB. 

Appendix IV: AAPC Technical Releases 
Appendix V: Checklists for Reviewing Systems 

under the Federal Financial Management 

Improvement Act 

Page 65 GAO-06-970 FFMIA Fiscal Year 2005 Results 

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-05-225G Core Financial System Requirements February 2005 

Source: GAO. 

Appendix V: Checklists for Reviewing 

Systems under the Federal Financial 

Management Improvement Act 
Appendix VI: Comments from the Office of 

Management and Budget 

 Page 66 GAO-06-970 FFMIA Fiscal Year 2005 Results 

Appendix VI: Comments from the Office of 

Management and Budget 
Appendix VI: Comments from the Office of 

Management and Budget 

 Page 67 GAO-06-970 FFMIA Fiscal Year 2005 Results 
Appendix VII: Auditors’ FFMIA Assessments Appendix VII: Auditors’ FFMIA Assessments for Fiscal Year 2005 

for Fiscal Year 2005 

Auditors’ assessment of

FFMIA compliance 

Areas auditors identified as not in 

substantial compliance 

CFO Act 

departments/agencies Yes No 

Systems 

requirements

Accounting 

standards SGL 

Department of Agriculture X X X X 

Department of Commerce X 

Department of Defense X X X X 

Department of Education X X 

Department of Energy X X X 

Department of Health and Human 

Services 

X X X 

Department of Homeland Security X X X X 

Department of Housing and Urban 

Development 

X X 

Department of the Interior X X X 

Department of Justice X X X X 

Department of Labor X 

Department of State X X X 

Department of Transportation X X X X 

Department of the Treasury X X X X 

Department of Veterans Affairs X X 

Agency for International Development X X X 

Environmental Protection Agency X 

General Services Administration X X 

National Aeronautics and Space 

Administration

X X X X 

National Science Foundation X 

Nuclear Regulatory Commission X X 

Office of Personnel Management X 

Small Business Administration X X X X 

Social Security Administration X 

Total 6 18 17 11 11

Source: GAO, prepared from analysis of fiscal year 2005 financial statement audit reports.

Page 68 GAO-06-970 FFMIA Fiscal Year 2005 Results 
Appendix VIII: GAO Contact and Staff 

Acknowledgments 

Page 69 GAO-06-970 FFMIA Fiscal Year 2005 Results 

McCoy Williams, (202) 512-9095 

In addition to the contact named above, Kay L. Daly, Assistant Director; 

Jeremy Cockrum; Debra Cottrell; Daniel Egan; C. Robin Hodge; Michael 

LaForge; W. Stephen Lowrey; Bennet E. Severson; and George Warnock 

made key contributions to this report. 

Appendix VIII: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(195076) 
The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER