Management Division

September 1991 The Chief Financ

Officers Act

A Mandate for Fed

Financial Managem

Reform

GAO/AFMD-12.19.4

The Chief Financial Officers (CFO) Act of 

(Public Law 101-576) marks the beginning 

promises to be a new era not only in feder

management and accountability, but also i

gain financial control of government opera

The government has a responsibility to use 

reliable, and comprehensive financial info

when making decisions which have an imp

citizens’ lives and livelihood. Despite good 

and past efforts to improve financial mana

systems, this is still not done.

The Congress mandated financial managem

by enacting the CFO Act, which was signe

by President Bush on November 15, 1990. 

most comprehensive and far-reaching fina

management improvement legislation sinc

Budget and Accounting Procedures Act of 

passed over 40 years ago. The CFO Act wi

foundation for comprehensive reform of fe

financial management. The act establishes 

leadership structure, provides for long-ran

planning, requires audited financial statem

strengthens accountability reporting.

Federal financial managers, auditors, and 

managers at all levels of government will b

as agencies take actions required under th

to improve financial management systems 

information. Therefore, it is essential that 

Act’s provisions are fully understood.

Page 1 GAO/AFMD-12
This booklet will help agency managers an

interested parties (1) become familiar with 

Act’s principal features, (2)better understa

actions needed to successfully implement 

(3) identify the sources for additional infor

assist in carrying out the act’s provisions.

Charles A. Bowsher

Comptroller General

of the United States

Page 2 GAO/AFMD-12
Page 3 GAO/AFMD-12
Preface 

OMB’s Leadership

Role

Agency CFOs 

Consolidated

Financial

Management

Operations

Enhanced

Financial

Management

Systems

Financial

Management

Plans

Improved Financial Information 

Financial

Statements and

Audits

Annual Financial

Management

Status Reports

Page 4 GAO/AFMD-12
Financial

Management

Staffing

The CFO Council 

Government

Corporations

Setting

Accounting and

Auditing

Standards

Table Table 1: Agencies Included in Financial

Statement Pilot Project

Abbreviations

CFO Chief Financial Officer

OMB Office of Management and Budget

GAO General Accounting Office

Page 5 GAO/AFMD-12
Strong centralized leadership is key to solv

government’s long-standing financial mana

problems. The Congress, the administratio

and others have supported this kind of lea

federal financial management.

The CFO Act provides for such leadership 

the Office of Management and Budget (OM

new authority and responsibility for direct

financial management, modernizing the go

financial management systems, and streng

financial reporting. The act also creates a n

position in OMB—the Deputy Director for

Management, who is to be the government

official responsible for financial managem

While the CFO Act emphasizes improved f

management, it also charges OMB’s Deput

for Management with overseeing many of 

government’s general management functio

functions include information policy, proc

policy, property management, and product

improvement.

The act specifies that the Deputy Director 

Management’s financial management func

include

• establishing governmentwide financial ma

policies and requirements and monitoring 

establishment and operation of financial m

systems;

• monitoring resources required to effective

maintain, and enhance financial managem

through activities such as reviewing agenc

requests for financial management system

operations;

• reviewing and, where appropriate, recomm

the Director of OMB changes to the budge

Page 6 GAO/AFMD-12
agency legislative proposals to ensure that 

accordance with OMB’s financial managem

• overseeing and making recommendations 

heads on the administrative structure of ag

financial management activities;

• monitoring the financial execution of the b

• ensuring that the government has a highly 

cadre of financial management profession

The CFO Act also establishes a new Office 

Financial Management in OMB to carry ou

governmentwide financial management

responsibilities. To head this office, the ac

establishes the position of Controller, an in

who is to possess “demonstrated ability an

experience in accounting, financial manag

financial systems.” This individual will han

day-to-day operations to ensure that financ

operations are being properly carried out

governmentwide.

Both the Deputy Director for Management 

Controller are to be appointed by the Pres

the advice and consent of the Senate.

Page 7 GAO/AFMD-12
Influential financial management leadersh

important at the agency level as it is at OM

reason, an agency CFO must be a key figur

agency’s top management team.

To provide a sound leadership structure lin

OMB’s financial management responsibilit

CFO Act creates chief financial officer pos

major agencies. For most of the agencies, 

to be a presidential appointee and is to be 

a deputy chief financial officer. Both are to 

extensive financial management experienc

The CFO Act specifies that OMB’s Deputy 

for Management is to develop and maintai

qualification standards for agency CFOs an

deputies. On June 6, 1991, OMB issued inte

standards, which provide guidance to agen

types of experience, knowledge, skills, and 

needed by agency CFOs.

An agency CFO is to report directly to the 

head on financial management matters. Th

responsibilities are to include the followin

• developing and maintaining integrated acc

and financial management systems;

• directing, managing, and providing policy 

and oversight of all agency financial mana

personnel, activities, and operations;

• approving and managing financial manage

systems design and enhancement projects

• developing budgets for financial managem

operations and improvements;

• overseeing the recruitment, selection, and 

personnel to carry out agency financial ma

functions;

• implementing agency asset management s

including systems for cash management, c

Page 8 GAO/AFMD-12
management, debt collection, and property 

inventory management and control; and

• monitoring the financial execution of the a

budget in relation to actual expenditures.

On February 27, 1991, OMB issued guidanc

(M-91-07) for preparing organization plans 

the CFO Act. That guidance details the aut

functions, and responsibilities that a CFO 

for compliance with the act.

Page 9 GAO/AFMD-12
Operations

The responsibility for developing and oper

financial management systems is often fra

between accounting organizations and pro

components. This leads to costly systems

development failures and poorly controlle

that are unresponsive to the needs of agen

managers.

To consolidate responsibility for an agenc

management, the CFO Act requires that

“an agency Chief Financial Officer shall oversee all fi

management activities relating to the programs and o

the agency.”

Under the act, an agency CFO’s responsibi

extend to every aspect of financial manage

related to operating agency programs.

Governmentwide organizational change is 

vest the CFOs with authority related to acc

budget execution, and other financial man

operations. This will ensure that one perso

part of top management has overall respon

establishing and implementing effective fin

management policies, internal controls, an

management systems.

Page 10 GAO/AFMD-12
Systems

For years, serious financial management s

problems have been reported by audits an

agencies themselves under the Federal Ma

Financial Integrity Act (31 U.S.C. 3512 (b), 

reports paint a bleak picture of a governm

antiquated financial systems that do not sa

today’s financial information needs.

To correct this situation, the CFO Act man

agency CFOs are to develop and maintain 

financial management systems that compl

• applicable accounting principles, standard

requirements;

• internal control standards; and

• requirements of OMB, the Department of t

Treasury, and others.

Agency financial management systems are 

complete, reliable, consistent, and timely i

Financial data are to be prepared on a unif

and be responsive to the financial informa

of agency management. To upgrade agenc

management systems, the act calls for age

to approve and manage agency financial m

systems design or enhancement projects.

OMB’s February 27, 1991, guidance to agen

preparing organization plans under the act 

that a CFO should have authority to

“manage directly, and/or monitor, evaluate, and appr

design, budget, development, implementation, opera

enhancement of agencywide and agency component 

financial and asset management systems.”

Further, the OMB guidance states that CFO

be full participants in agency information r

management decisions.

Page 11 GAO/AFMD-12
A structured approach to planning and dev

financial systems projects is critical to the

For example, this approach to financial ma

systems development could specify (1) go

resolving financial systems problems, (2) p

strategies for accomplishing these goals, a

(3) milestones for plan implementation. By 

approach, systems can be designed, maint

revised from an agencywide perspective.

The CFO Act requires OMB to prepare and 

the Congress a governmentwide 5-year fin

management plan. The plan, which is to be 

annually, is to describe planned OMB and 

activities for the next 5 fiscal years to impr

financial management of the federal gover

should be a vision of how financial manag

reform will be carried out—a blueprint for 

with a set of clear expectations. Further, t

requires agency CFOs to prepare and annu

agency plans to implement OMB’s 5-year f

management plan.

Each 5-year plan submitted by OMB is to i

information such as the following:

• a description of the existing financial man

structure and any changes needed to estab

integrated financial management system;

• a strategy for developing and integrating in

agency accounting, financial information, 

financial management systems;

• proposals to eliminate duplicate and other

unnecessary systems and projects to bring 

systems into compliance with applicable s

and requirements;

• milestones for equipment acquisitions and 

actions necessary to implement the 5-year 

1

GAO’s Critical Factors in Developing Automated Ac

Financial Management Systems (January 1987).

Page 12 GAO/AFMD-12
• financial management personnel needs an

ensure those needs are met;

• a plan for ensuring the annual audit of fina

statements of executive agencies pursuant 

• cost estimates for implementing the gover

5-year plan; and

• a report on executive branch implementat

plan during the preceding fiscal year.

The comprehensive governmentwide and 

plans called for in the act should enable to

to monitor major financial management sy

development efforts and operations. Thus, 

will help ensure that financial managemen

and internal control improvement efforts a

completed on schedule, correct problems, 

comply with applicable requirements.

Improved planning should help ensure tha

reporting provides for complete, reliable, c

and timely information that responds to m

financial information needs. Over time, the

will help to bring about continuity in syste

development projects and facilitate a unifi

approach to setting priorities and allocatin

resources.

The Department of the Treasury has issue

for examining financial management syste

improvement plans.2

 These guidelines, wh

developed in cooperation with OMB and o

agencies, would be useful in devising agen

improvement plans under the CFO Act, as 

assessing their adequacy.

2

Financial Management Systems Plan Review Method

Department of the Treasury, Financial Management S

December 1990.

Page 13 GAO/AFMD-12
Improved

Financial

Information

The lack of useful financial information im

federal government’s efforts to build an ef

financial management structure.3 Better m

information (such as reports of performan

indicators) can be an early warning measu

identifies developing problems before they 

critical proportions. Also, decisionmakers 

reliable financial information to assess the

implications of alternatives and improve th

and efficiency of government operations.

Several of the CFO Act’s requirements aim 

the financial information available to agen

managers, the Congress, and others. One o

requires that agency CFOs develop and ma

accounting and financial management syst

report cost information.

Another calls for the integration of accoun

budgeting information. Thus, principles us

accounting for program costs are to be con

with those used in developing program bu

clear linking of budgeting and accounting 

can benefit both management control and 

The act also specifies that agency financia

management systems must provide for the 

measurement of performance. Therefore, 

CFOs will have an important responsibility 

financial management systems are designe

cost trends and other performance indicat

Most importantly, the act requires that fina

statements be prepared and audited. This 

is further discussed in the following sectio

Together, these features of the CFO Act w

the reliability and usefulness of agency fin

information.

3

Managing the Cost of Government: Building An Effe

Management Structure (GAO/AFMD-85-35 and 35-A, 

Page 14 GAO/AFMD-12
Analyses of financial statements can also p

managers with valuable information on tre

financial viability of programs. To assist ag

analyzing financial statements, GAO issued 

entitled, Financial Reporting: Framework 

Analyzing Federal Agency Financial Statem

(GAO/AFMD-91-19, March 1991). As an ex

guide includes an analysis of the financial 

issued by the Department of Veterans Affa

fiscal years 1986 through 1989; applies the 

measures, and techniques set forth in the f

and discusses the results of the analysis.

Page 15 GAO/AFMD-12
Since 1984, GAO has audited the financial 

for various federal agencies, including the 

Services Administration and the Departme

Agriculture, the Air Force, Housing and Ur

Development, and Veterans Affairs. These 

improved the quality of agency financial in

and identified significant problems in agen

operations and reporting.

The CFO Act requires that financial statem

prepared for trust and revolving fund oper

for agency programs that are substantially

commercial functions. For example, this w

include programs for providing (1) insuran

(2) loans and loan guarantees, and (3) a se

thing of value for which a fee, royalty, or r

charged. The act also establishes a pilot pr

whereby certain agencies, listed in table 1, 

prepare agencywide financial statements f

years.

Page 16 GAO/AFMD-12
Table 1: Agencies

Included in Financial

Statement Pilot Project

Fiscal year

Agency 1990 1991 

Agriculture X X 

Labor X X 

Veterans Affairs X X 

General Services

Administration X X 

Social Security

Administration X X 

Housing and

Urban

Development X 

Army X 

Air Force 

Internal Revenue

Service 

Customs Service 

The CFO Act requires that the financial sta

audited. These audits are the responsibility 

inspectors general but may be conducted b

the discretion of, the Comptroller General

an inspector general.

Inspectors general may contract with inde

public accountants to conduct financial st

audits. GAO’s Guide to Federal Agencies’

Procurement of Audit Services From Indep

Public Accountants (GAO/AFMD-12.19.3,

April 1991) provides advice in this regard.

Reports of audits conducted under the CF

be completed by June 30 of the year follow

close of the fiscal year for which the finan

statements were prepared. Further, OMB i

to report to the Congress by June 30, 1993

Page 17 GAO/AFMD-12
benefits, difficulties, and costs associated 

preparing these financial statements and h

audited.

Page 18 GAO/AFMD-12
Reports

To heighten accountability and make the f

results of programs clearly visible, agency 

responsible under the act for preparing an

reports and transmitting them to agency h

OMB. These reports are due within 60 day

submission of the auditor’s report on its au

annual financial statements (approximatel

of each year) and are to include the follow

information:

• a description and analysis of the status of 

financial management;

• the annual financial statements and audit r

prepared under the CFO Act, where applic

• a summary of the reports on internal acco

administrative control systems submitted 

President and the Congress under the Fed

Managers’ Financial Integrity Act; and

• other information the agency head conside

appropriate concerning agency financial

management.

GAO’s November 1990 report on the Depa

Veterans Affairs4 is an example of a report 

contains this information. This type of rep

accountability for government programs a

resources and can be used for oversight an

decision-making when assessing departme

programs and determining public policy.

In addition to these agency reports, the CF

for OMB to annually submit to the Congre

governmentwide financial management sta

at the time of the President’s budget subm

report is to include a description and analy

status of financial management in the exec

branch from a governmentwide perspectiv

4

Financial Audit: Department of Veterans Affairs Fin

Statements for Fiscal Years 1989 and 1988 (GAO/AFM

November 14, 1990).

Page 19 GAO/AFMD-12
summary of the information contained in a

annual financial status reports.

Page 20 GAO/AFMD-12
The lack of a cadre of highly qualified fina

management professionals has long hamp

effective federal financial management op

The CFO Act addresses the need for such

professionals to fill CFO and Deputy CFO 

and to adequately staff financial managem

operations.

For example, the act requires OMB’s Depu

for Management to develop and maintain q

standards for agency CFOs and their depu

advise agency heads on selecting people to 

positions. Also, the Deputy Director for M

is responsible for (1) providing advice to a

the qualifications, recruitment, performan

retention of financial management personn

(2) assessing the overall adequacy of the p

qualifications and capabilities of financial

management staffs throughout the governm

(3) making recommendations on ways to i

quality of those staffs.

The act specifically places with the agency 

responsibility for recruiting, selecting, and 

personnel to carry out agency financial ma

functions. OMB’s February 27, 1991, guida

implementing the act (M-91-07) states that 

CFOs should have authority to provide age

policy advice on financial management sta

matters.

Many agencies have major components th

financial management operations. OMB’s g

states that agency CFOs are responsible fo

(1)approving job descriptions and skill req

for those who head these components’ fin

management activities and operations and

(2)participating in their annual performan

evaluation.

Page 21 GAO/AFMD-12
Overall, the government faces a major cha

attracting and retaining an adequate numb

with the skills needed to staff financial ma

operations. The 5-year financial manageme

called for by the act will provide a basis fo

identifying and addressing potential staffin

problems.

A continuing education policy for financia

is also important in maintaining a well-trai

high-caliber financial management work fo

policy is recommended by the Joint Finan

Management Improvement Program5 in its

December 1990 report, Continuing Profess

Education: Federal GS-510 Accountants.

5

The Joint Financial Management Improvement Prog

cooperative undertaking of OMB, the Department of 

GAO, and the Office of Personnel Management to im

management practices throughout government.

Page 22 GAO/AFMD-12
In November 1987, the CFOs that had been

administratively named by agencies forme

advisory body on governmentwide accoun

financial management policy. This body pr

forum to exchange ideas and consider issu

common interest, such as modernizing fin

systems and improving the quality of finan

information.

To continue these efforts, the CFO Act est

Chief Financial Officers Council. The act s

that the Council will be chaired by OMB’s 

Director for Management. Other members 

OMB’s Controller, Treasury’s Fiscal Assist

Secretary, and the agency CFOs appointed 

act.

As specified in the act, the CFO Council’s 

are to advise agencies and coordinate thei

on financial management matters, such as

(1) consolidating and modernizing financia

(2) improving the quality of financial data 

information standards, (3) strengthening in

controls, and (4) developing legislation aff

financial operations and organizations.

Page 23 GAO/AFMD-12
The CFO Act institutes changes in the fina

management of government corporations, 

Resolution Trust Corporation and the Fed

Insurance Corporation.

First, government corporations are require

annually prepare a report on their internal 

and administrative controls, consistent wi

Federal Managers’ Financial Integrity Act 

for reports by executive agencies. These re

should be based on annual reviews of the

corporation’s controls. Whenever the revie

significant problems, the corporations sho

specific corrective action plans.

Prior to enactment of the CFO Act, the Go

Corporation Control Act (31 U.S.C. 9105) r

GAO to perform a financial statement audi

covered corporations at least once every 3 

CFO Act changes the timing and responsib

these audits. Each corporation is now requ

have its financial statements audited annu

inspector general or by an independent pu

accountant. The Comptroller General reta

discretionary authority to conduct the aud

The CFO Act also requires the head of the 

to submit an annual management report to 

President and the Congress no later than 1

after the end of the corporation’s fiscal yea

inform the Congress about the corporation

operations and financial condition, these r

to include information such as the corpora

audited financial statements and report on 

controls.

Page 24 GAO/AFMD-12
Standards

Relevant accounting and auditing standard

critical to the CFO Act’s financial statemen

initiatives. The act calls for agency financi

to comply with applicable accounting prin

standards, and requirements. Also, audits 

statements prepared under the act are to b

accordance with generally accepted gover

auditing standards.

The Budget and Accounting Procedures A

(31 U.S.C. 3511 (a)) directs the Comptrolle

in consultation with OMB and Treasury, to 

accounting principles, standards, and relat

requirements for executive agencies to fol

CFO Act provides that OMB’s Deputy Dire

Management is to establish governmentwi

management policies and requirements for 

agencies.

To ensure the relevancy of federal accoun

standards, the Comptroller General, the D

OMB, and the Secretary of the Treasury ha

to a cooperative approach to the standard-

process by establishing the Federal Accou

Standards Advisory Board. This nine-mem

advisory board of knowledgeable individu

government and the private sector will ma

recommendations to the heads of GAO, OM

Treasury on proposed accounting standard

to meet the needs of federal agencies and 

of federal financial information.

The Board is studying a wide range of acco

standards. In March 1991, the Board recom

that agencies continue to use, on an interim 

applicable accounting standards contained 

accounting policies, procedures manuals, 

related guidance to prepare their financial 

under the CFO Act. Where these applicabl

Page 25 GAO/AFMD-12
differ from those of GAO’s Policy and Proc

Manual for Guidance of Federal Agencies 

agencies are to fully disclose the differenc

alternative accounting basis used in prepa

statements. On June 11, 1991, OMB adopte

recommendation (M-91-11).

Generally accepted government auditing s

are issued by the Comptroller General in G

Government Auditing Standards (1988 Rev

“Yellow Book.” Updates to the standards w

recommendations from the newly establis

Government Auditing Standards Advisory 

The Council will advise the Comptroller G

auditing standards issues throughout the

standard-setting process. It will be involve

identification, development, and issuance 

to Government Auditing Standards as well 

interpretations of and guidance on the stan

Page 26 GAO/AFMD-12
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