United States General Accounting Office 

GAO Testimony 

Before the Subcommittee on Government Efficiency and 

Financial Management, Committee on Government 

Reform, House of Representatives 

For Release on Delivery 

Expected at 2:30 p.m. EST 

Wednesday, October 29, 2003 

FINANCIAL 

MANAGEMENT 

Recurring Financial 

Systems Problems Hinder 

FFMIA Compliance 

Statement of Sally E. Thompson 


Director, Financial Management and Assurance


GAO-04-209T


A
Highlights of GAO-04-209T, a testimony 

before the Subcommittee on Government 

Efficiency and Financial Management, 

Committee on Government Reform, 

House of Representatives 

The Federal Financial Management 

Improvement Act of 1996 (FFMIA) 

requires 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. Most federal agencies face 

long-standing challenges, which are 

discussed in greater detail in our 

mandated September 2003 report, 

Sustained Efforts Needed to 

Achieve FFMIA Accountability 

(GAO-03-1062). In light of these 

circumstances, the Subcommittee 

asked GAO to testify about 

recurring financial management 

systems problems and agencies’ 

efforts to upgrade their systems. 

GAO is not making new 

recommendations in this 

testimony, but in a past report has 

made specific recommendations 

aimed at addressing the problems 

hindering agencies’ compliance 

with FFMIA. 

www.gao.gov/cgi-bin/getrpt?GAO-04-209T. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sally 

Thompson, (202)512-9450, 

thompsons@gao.gov. 

October 29, 2003 

FINANCIAL MANAGEMENT 

Recurring Financial Systems Problems 

Hinder FFMIA Compliance 

The results of the fiscal year 2002 FFMIA assessments performed by agency 

inspectors general or their contract auditors again show that the same types 

of problems continue to plague the financial management systems used by 

the CFO Act agencies. While much more severe at some agencies than 

others, the nature and severity of the problems indicate that overall, agency 

management lacks the full range of information needed for accountability, 

performance reporting, and decision making. As shown in the figure below, 

audit reports highlight six recurring problems that have been consistently 

reported for those agencies whose auditors reported noncompliant systems. 

Problems Reported by Auditors for Fiscal Years 2000 through 2002 

Agencies have recognized the seriousness of the financial systems 

weaknesses, and have many efforts underway to implement or upgrade 

financial systems to alleviate long-standing problems. As of September 30, 

2002, 17 CFO Act agencies advised us they were planning to or were in the 

process of implementing a new core financial system. It is imperative that 

agencies adopt leading practices, such as top management commitment and 

business process reengineering, to ensure successful systems 

implementation and to avoid complicating factors, such as poor 

communication and inadequate project planning, that have hampered some 

agencies’ efforts in the past. 

Congressional oversight, the Joint Financial Management Improvement 

Program Principals, and the President’s Management Agenda are driving 

forces behind several governmentwide efforts now underway to improve 

federal financial management. Continued attention by these key drivers is 

critical to sustaining agencies efforts to improve their financial management 

systems. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here to discuss the challenges most of the federal 

departments and agencies still face in meeting the primary goals of the 

Congress in enacting the Federal Financial Management Improvement Act 

of 1996 (FFMIA).1 As you requested, our testimony today addresses the 

recurring financial management systems problems that agencies are facing 

and the status of their efforts to implement systems that substantially 

comply with FFMIA. 

As you know, FFMIA builds on the foundation laid by the Chief Financial 

Officers (CFO) Act of 19902

 by reflecting the need for agencies to have 

financial management systems that can generate timely, accurate, and 

useful information with which to make informed decisions and to ensure 

accountability on an ongoing basis. FFMIA requires the major departments 

and agencies covered by the CFO Act

3

 to implement and maintain financial 

management systems that comply substantially with the (1) federal 

financial management systems requirements, (2) applicable federal 

accounting standards, and (3) U.S. Government Standard General Ledger 

(SGL) at the transaction level. Further, FFMIA requires auditors to report 

in their CFO Act financial statement audit reports whether the agencies’ 

financial management systems comply with FFMIA’s requirements. We are 

also required to report annually on the implementation of the act. 

1

Pub. L. No. 104-208, sec.101(f)(title VIII), 110 Stat. 3009-389. 

2

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

3

There were initially 24 CFO Act agencies (see footnote 2 above). The Federal Emergency 

Management Agency (FEMA), one of the 24 CFO Act agencies, was subsequently 

transferred to the new Department of Homeland Security (DHS) effective March 1, 2003. 

With this transfer, FEMA will no longer be statutorily required to prepare audited standalone financial statements. We included FEMA in our review because FEMA was a CFO Act 

agency as of September 30, 2002. DHS must prepare audited financial statements under the 

Accountability of Tax Dollars Act of 2002, because it is a “covered executive agency” for 

purposes of 31 U.S.C. 3515. However, DHS was not established as a CFO Act agency and 

therefore is not statutorily subject to FFMIA. Consideration is now being given to making 

DHS a CFO Act agency and therefore subject to FFMIA in the Department of Homeland 

Security Financial Accountability Act, H.R. 2886, 108th Congress. 

Page 1 GAO-04-209T 
As discussed in our recently issued annual report on FFMIA,4

 the results of 

the fiscal year 2002 FFMIA assessments performed by agency inspectors 

general (IG) or their contract auditors again show that the same types of 

problems still plague the financial management systems used by the CFO 

Act agencies. While much more severe at some agencies than others, the 

nature and severity of the problems indicate that overall, agency 

management lacks the full range of information needed for accountability, 

performance reporting, and decision making. While the CFO Act agencies 

have obtained more clean or unqualified audit opinions on their financial 

statements, often through extraordinary, labor-intensive measures, there is 

little evidence of marked improvements in agencies’ capacities to create 

the full range of information needed to manage day-to-day operations. As 

we have previously testified5

 before this Subcommittee, if agencies 

continue year after year to rely on significant costly and time-intensive 

manual efforts to achieve or maintain unqualified opinions without 

improving underlying financial management systems, it can mislead the 

public about the true status of the agencies’ financial management 

capabilities. 

4

U.S. General Accounting Office, Financial Management: Sustained Efforts Needed to 

Achieve FFMIA Accountability, GAO-03-1062 (Washington, D.C.: Sept. 30, 2003). 

5

U.S. General Accounting Office, Financial Management: Effective Implementation of 

FFMIA is Key to Providing Reliable, Useful, and Timely Data, GAO-02-791T (Washington, 

D.C.: June 6, 2002) and Financial Management: Agencies Face Many Challenges in 

Meeting the Goals of the Federal Financial Management Improvement Act, GAO/T-AIMD00-178 (Washington, D.C.: June 6, 2000). 

Page 2 GAO-04-209T 
Agencies have recognized the seriousness of the financial systems 

weaknesses, and have many efforts underway to implement or upgrade 

financial systems to alleviate long-standing problems. As of September 30, 

2002, 17 CFO Act agencies advised us they were planning to or were in the 

process of implementing a new core financial system. Under the Office of 

Management and Budget’s (OMB) Circular A-127, Financial Management 

Systems, agencies are required to purchase commercial off-the-shelf 

(COTS) packages sold by vendors whose core financial systems software 

has been certified.

6 Some of the key factors that affect FFMIA compliance 

of an implemented COTS package include how the software works in the 

agency’s environment, whether any customizations or modifications7

 have 

been made to the software, and the success of converting data from legacy 

systems to new systems. 

Successful implementation efforts of financial management systems are 

supported by the presence of several key characteristics, which apply to 

both the public and private sectors. These characteristics include, among 

others, (1) involvement by the users, (2) support of executive management, 

(3) leadership provided by experienced project managers, (4) clear 

definition and management of project requirements, (5) proper planning, 

and (6) realistic expectations. Conversely, financial systems 

implementation projects are often hindered by the lack of executive 

support, poor communication between managers and stakeholders, poor 

estimations and planning, and poor documentation and updating of user 

requirements. 

To provide impetus for upgrading financial management systems that 

provide reliable, timely, and useful data, congressional oversight, the Joint 

Financial Management Improvement Program (JFMIP) Principals,8

 and the 

President’s Management Agenda (PMA) are driving forces behind several 

6

The Program Management Office, managed by the Executive Director of the Joint Financial 

Management Improvement Program (JFMIP), with funds provided by the CFO Council 

agencies, tests vendor COTS packages and certifies that they meet certain federal financial 

management systems requirements for core financial systems. 

7

Customization is the process of setting parameters within an application to make it operate 

in accordance with the entity’s business rules. Customizations are normally supported by 

vendors in subsequent upgrades. Modification is the process of writing or changing code 

and modifications are not supported by vendors in subsequent upgrades. 

8

The JFMIP Principals are the Secretary of the Treasury, the Directors of OMB and the 

Office of Personnel Management (OPM), and the Comptroller General of the United States. 

Page 3 GAO-04-209T 
governmentwide efforts now underway to improve federal financial 

management. The Congress has demonstrated leadership in improving 

federal financial management by enacting financial management reform 

laws and through oversight hearings, such as this one today. The JFMIP 

Principals have continued the series of regular deliberative meetings that 

focus on key financial management reform issues. The PMA, being 

implemented by the administration as an agenda for improving the 

management and performance of the federal government, includes five 

crosscutting initiatives, including improved financial performance. 

Continued attention by these key drivers is critical to sustaining agencies’ 

efforts to improve their financial management systems. 

My statement today will focus on these issues and discuss (1) auditors’ 

determinations of FFMIA compliance for fiscal year 2002, (2) problems that 

affect agency systems’ compliance with FFMIA, (3) agency efforts to 

implement new core financial systems, (4) key characteristics of successful 

systems implementation and the challenges federal agencies face, and 

(5) the status of governmentwide financial management improvement 

efforts. 

Auditors’ Assessments 

of FFMIA Compliance 

for Fiscal Year 2002 

For fiscal year 2002, Inspectors General and their contract auditors 

reported that the systems for 19 of the 24 CFO Act agencies did not comply 

substantially with at least one of the FFMIA requirements—federal 

financial management systems requirements, applicable federal accounting 

standards, or the SGL. Auditors’ assessments of financial systems’ 

compliance with FFMIA for 3 agencies—the Department of Labor (DOL), 

Environmental Protection Agency (EPA), and the National Science 

Foundation (NSF)—changed from fiscal years 2001 to 2002. For fiscal year 

2002, the auditors for DOL concluded that its systems were not in 

substantial compliance with the managerial cost standard and thus were 

not in compliance with FFMIA. Auditors for EPA and NSF found the 

agencies’ respective systems to be in substantial compliance, a change 

from the fiscal year 2001 assessments. 

Page 4 GAO-04-209T 
As we have testified previously,

9 while the number of agencies receiving 

clean opinions increased over the past 6 years from 11 in fiscal year 1997 to 

21 for fiscal year 2002, the number of agencies reported to have systems 

that lacked substantial compliance with FFMIA has remained steady. 

While the increase in unqualified opinions is noteworthy, a more important 

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

of agencies for which auditors provided negative assurance10 of FFMIA 

compliance has remained relatively constant throughout this same period. 

In our view, this has led to an expectation gap. When more agencies 

receive clean opinions, expectations are raised that the government has 

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

information on demand throughout the year, whereas FFMIA assessments 

offer a different perspective. For agencies equipped with modern, fully 

integrated financial management systems, preparation of financial 

statements would be more routine and much less costly. 

Auditors for the remaining five agencies—the Department of Energy, EPA, 

the General Services Administration (GSA), NSF, and the Social Security 

Administration (SSA)—provided negative assurance in reporting on FFMIA 

compliance for fiscal year 2002. In their respective reports, they included 

language stating that while they did not opine as to FFMIA compliance, 

nothing came to their attention during the course of their planned 

procedures indicating that these agencies’ financial management systems 

did not meet FFMIA requirements. If readers do not understand the 

concept of negative assurance, they may have gained an incorrect 

impression that these systems have been fully tested by the auditors and 

found to be substantially compliant. Because the act requires auditors to 

“report whether” agency systems are substantially compliant, we believe 

the auditor needs to provide positive assurance, which would be a 

definitive statement as to whether agency financial management systems 

substantially comply with FFMIA, as required under the statute. This is 

what we will do for the financial statement audits we perform when 

reporting that an entity’s financial management systems were in substantial 

compliance. To provide positive assurance, auditors need to consider 

many other aspects of financial management systems than those applicable 

to the purposes of rendering an opinion on the financial statements. 

9

GAO-02-791T. 

10In providing negative assurance, auditors are stating that nothing came to their attention 

indicating that an agency’s financial management systems do not meet FFMIA requirements. 

Page 5 GAO-04-209T 
Widespread Systems 

Problems Affect 

FFMIA Compliance 

Based on our review of the fiscal year 2002 audit reports for the 19 agencies 

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

FFMIA’s three requirements, we identified six primary problems11 affecting 

FFMIA noncompliance: 

• 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. 

The relative frequency of these problems12 at the 19 agencies reported as 

having noncompliant systems is shown in figure 1. In addition, we caution 

that the occurrence of problems in a particular category may be even 

greater than auditors’ reports of FFMIA noncompliance would suggest 

because auditors may not have included all problems in their reports. 

FFMIA testing may not be comprehensive and other problems may exist 

that were not identified and reported. For example, at some agencies, the 

problems are so serious and well known that the auditor can readily 

determine that the systems are not substantially compliant without 

examining every facet of FFMIA compliance. 

11The same six types of problems were cited by auditors in their audit reports for fiscal years 

2000 and 2001. 

12Auditors may not have reported these problems as specific reasons for lack of substantial 

compliance with FFMIA. 

Page 6 GAO-04-209T 
Figure 1: Problems Reported by Auditors for Fiscal Years 2000 through 2002 

Nonintegrated Financial 

Management Systems 

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

accounting and financial management system13 that complies with federal 

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

and timely information that is responsive to the financial information needs 

of the agency and facilitates the systematic measurement of performance, 

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

(3) the integration of accounting and budgeting information. In this regard, 

OMB Circular A-127, Financial Management Systems, requires agencies to 

13Federal financial system requirements define an integrated financial system as one that 

coordinates a number of previously unconnected functions to improve overall efficiency 

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

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

(3) consistent control over data entry, transaction processing, and reporting, and (4) a 

system design that eliminates unnecessary duplication of transaction entry. 

Page 7 GAO-04-209T 
establish and maintain a single integrated financial management system 

that conforms with functional requirements published by JFMIP. 

An integrated financial system coordinates a number of functions to 

improve overall efficiency and control. For example, integrated financial 

management systems are designed to avoid unnecessary duplication of 

transaction entry and greatly lessen reconciliation issues. With integrated 

systems, transactions are entered only once and are available for multiple 

purposes or functions. Moreover, with an integrated financial management 

system, an agency is more likely to have reliable, useful, and timely 

financial information for day-to-day decision making as well as external 

reporting. 

Agencies that do not have integrated financial management systems 

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

hiring external consultants, to develop information that their systems 

should be able to provide on a daily or recurring basis. In addition, 

opportunities for errors are increased when agencies’ systems are not 

integrated. Agencies with nonintegrated financial systems are more likely 

to be required to devote more resources to collecting information than 

those with integrated systems. 

Auditors frequently mentioned the lack of modern, integrated financial 

management systems in their fiscal year 2002 audit reports. As shown in 

figure 1, auditors for 12 of the 19 agencies with noncompliant systems 

reported this as a problem. For example, auditors for the Department of 

Transportation (DOT) reported that its major agencies still use the 

Departmental Accounting and Financial Information System (DAFIS), the 

existing departmentwide accounting system14 and cannot produce 

auditable financial statements based on the information in DAFIS. For 

example, DOT’s IG reported that DOT made about 860 adjustments outside 

of DAFIS totaling $51 billion in order to prepare the financial statements.15 

DOT’s IG also reported that there were problems linking some information 

between DAFIS and the Federal Highway Administration’s Fiscal 

Management Information System (FMIS). DOT uses FMIS to record initial 

obligations for federal aid grants to states. However, due to problems 

14DOT is implementing a COTS-based core financial system called Delphi. DOT 

management projects that the implementation will be complete in fiscal year 2004. 

15Office of Inspector General, Department of Transportation, Consolidated Financial 

Statements for Fiscal Years 2002 and 2001, FI-2003-018 (Jan. 27, 2003). 

Page 8 GAO-04-209T 
resulting from upgrades and changes made to the FMIS system, all 

obligations are not electronically transferred from FMIS to DAFIS. As of 

September 30, 2002, valid obligations of about $388 million were 

understated. Moreover, problems linking information also existed between 

Delphi, DOT’s new financial management system, and the Federal Transit 

Administration’s (FTA) financial feeder systems that prevented FTA from 

electronically processing about $350 million in payments related to its 

Electronic Clearing House Operation. These transactions had to be 

manually processed into Delphi. What is important here is that the 

information developed to prepare auditable annual financial statements is 

not available on an ongoing basis for day-to-day management of DOT’s 

programs and operations. 

As we have reported,16 cultural resistance to change, military service 

parochialism, and stovepiped operations have played a significant role in 

impeding previous attempts to implement broad-based reforms at the 

Department of Defense (DOD). The department’s stovepiped approach is 

most evident in its current financial management systems environment, 

which DOD recently estimated to include approximately 2,300 systems and 

systems development projects—many of which were developed in 

piecemeal fashion and evolved to accommodate different organizations, 

each with its own policies and procedures. As DOD management has 

acknowledged,17 the department’s current financial environment is 

comprised of many discrete systems characterized by poor integration and 

minimal data standardization and prevents managers from making more 

timely and cost-effective decisions. 

Inadequate Reconciliation 

Procedures 

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

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

financial management system, the greater the need for adequate 

reconciliations because data are accumulated from various sources. For 

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

16U.S. General Accounting Office, Department of Defense: Status of Financial Management 

Weaknesses and Progress Toward Reform, GAO-03-931T (Washington, D.C.: June 25, 2003). 

17Department of Defense, Performance and Accountability Report, Fiscal Year 2002 (Jan. 

31, 2003). 

Page 9 GAO-04-209T 
reported18 that the department’s lack of an integrated financial 

management system continues to impair the ability of certain operating 

divisions to prepare timely information. Moreover, certain reconciliation 

processes were not adequately performed to ensure that differences were 

properly identified, researched, and resolved in a timely manner and that 

account balances were complete and accurate. 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 highlights reconciliation as a 

key control activity. 

As shown in figure 1, auditors for 11 of the 19 agencies with noncompliant 

systems reported that the agencies had reconciliation problems, including 

difficulty reconciling their fund balance with Treasury accounts19 with 

Treasury’s records. Treasury policy requires agencies to reconcile their 

accounting records with Treasury records monthly, which is comparable to 

individuals reconciling their checkbooks to their monthly bank statements. 

As we recently testified,20 DOD had at least $7.5 billion in unexplained 

differences between Treasury and DOD fund activity records. Many of 

these differences represent disbursements made and reported to Treasury 

that had not yet been properly matched to obligations and recorded in DOD 

accounting records. In addition to these unreconciled amounts, DOD 

identified and reported an additional $3.6 billion in payment recording 

errors. These include disbursements that DOD has specifically identified 

as containing erroneous or missing information and that cannot be 

properly recorded and charged against the correct, valid fund account. 

DOD records many of these payment problems in suspense accounts. 

While DOD made $1.6 billion in unsupported adjustments to its fund 

balances at the end of fiscal year 2002 to account for a portion of these 

payment recording errors, these adjustments did not resolve the related 

errors. 

18Office of Inspector General, Independent Auditor’s Report on Financial Statements, A-17-

02-0001, Fiscal Year 2002 Performance and Accountability Report, U.S. Department of 

Health and Human Services. 

19Agencies record their budget spending authorizations in their fund balance with Treasury 

accounts. Agencies increase or decrease these accounts as they collect or disburse funds. 

20GAO-03-931T. 

Page 10 GAO-04-209T 
Inadequate reconciliation procedures also complicate the identification 

and elimination of intragovernmental activity and balances, which is one of 

the principal reasons we continue to disclaim on the government’s 

consolidated financial statements. As we testified in April 2003,21 agencies 

had not reconciled intragovernmental activity and balances with their 

trading partners22 and, as a result, information reported to Treasury is not 

reliable. For several years, OMB and Treasury have required CFO Act 

agencies to reconcile selected intragovernmental activity and balances 

with their trading partners. However, a substantial number of CFO Act 

agencies did not perform such reconciliations for fiscal years 2002 and 

2001, citing such reasons as (1) trading partners not providing needed data, 

(2) limitations and incompatibility of agency and trading partner systems, 

and (3) human resource issues. For both of these years, amounts reported 

for federal trading partners for certain intragovernmental accounts were 

significantly out of balance. Actions are being taken governmentwide 

under OMB’s leadership to address problems associated with 

intragovernmental activity and balances. 

Lack of Accurate and Timely 

Recording of Financial 

Information 

Auditors for 17 agencies reported the lack of accurate and timely recording 

of financial information for fiscal year 2002 compared to the 14 agencies23 

for which auditors noted similar problems in their 2001 reports. Accurate 

and timely recording of financial information is key to successful financial 

management. Timely recording of transactions can facilitate accurate 

reporting in agencies’ financial reports and other management reports that 

are used to guide managerial decision making. The Comptroller General’s 

Standards for Internal Control in the Federal Government states that 

transactions should be promptly recorded to maintain their relevance and 

value to management in controlling operations and making decisions. 

21U.S. General Accounting Office, Fiscal Year 2002 U.S. Government Financial 

Statements: Sustained Leadership and Oversight Needed for Effective Implementation of 

Financial Management Reform, GAO-03-572T (Washington, D.C.: Apr. 8, 2003). 

22Trading partners are U.S. government agencies, departments, or other components that do 

business with each other. 

23In our October 2002 FFMIA report, we stated that auditors had discussed the lack of 

accurate and timely recording of transactions at 12 agencies. As part of our analysis of most 

recent agency audit reports, it became apparent that these problems were reported in prior 

years for 2 additional agencies, but the earlier audit reports did not include sufficient detail 

to make these assessments. 

Page 11 GAO-04-209T 
Untimely recording of transactions during the fiscal year can result in 

agencies making substantial efforts at fiscal year-end to perform extensive 

manual financial statement preparation efforts that are susceptible to error 

and increase the risk of misstatements. Gathering financial data only at 

year-end does not provide adequate time to analyze transactions or account 

balances. Further, it impedes management’s ability throughout the year to 

have timely and useful information for decision making. For example, 

auditors reported24 that, for fiscal year 2002, Department of Justice 

(Justice) components did not adjust the status of obligations on a quarterly 

basis as required, and as a result, extensive manual efforts had to be 

performed at year-end to correct the status of obligation records. This 

process of reviewing the status of obligations only at the end of the year 

increases the risk that errors will go undetected, does not provide 

managers with accurate information during the year for decision making, 

and results in misstatements in the financial statements. 

Noncompliance with the 

SGL 

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

requirements of FFMIA. However, as shown in figure 1, auditors for 9 of 

the 19 noncompliant agencies reported that the agencies’ systems did not 

comply with SGL requirements. The SGL promotes consistency in financial 

transaction processing and reporting by providing a uniform chart of 

accounts and pro forma transactions. Use of the SGL also provides a basis 

for comparison at agency and governmentwide levels. These defined 

accounts and pro forma transactions are used to standardize the 

accumulation of agency financial information, as well as enhance financial 

control and support financial statement preparation and other external 

reporting. By not implementing the SGL, agencies are challenged to 

provide consistent financial information across their components and 

functions. 

24PricewaterhouseCoopers, Report of Independent Accountants, January 15, 2003, FY 2002 

Performance & Accountability Report, U.S. Department of Justice. 

Page 12 GAO-04-209T 
As in previous years, the Department of Housing and Urban Development’s 

(HUD) auditors reported that the Federal Housing Administration’s (FHA) 

systems were noncompliant with the SGL for fiscal year 2002 because FHA 

must use several manual processing steps to convert its commercial 

accounts to SGL accounts.25 FHA’s 19 legacy insurance systems, which fed 

transactions to its commercial general ledger system, lacked the 

capabilities to process transactions in the SGL format. Therefore, FHA 

provided only consolidated summary-level data to HUD’s Central 

Accounting and Program System (HUDCAPS). As we reported,26 FHA used 

several manual processing steps to provide summary-level data, including 

the use of personal-computer-based software to convert the summary-level 

commercial accounts to government SGL, and transfer the balances to 

HUDCAPS. This process did not comply with JFMIP requirements that the 

core financial system provide for automated month- and year-end closing of 

SGL accounts and the roll-over of the SGL account balances. 

Lack of Adherence to 

Federal Accounting 

Standards 

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

systems account for transactions in accordance with federal accounting 

standards. Agencies face significant challenges implementing these 

standards. As shown in figure 1, auditors for 13 of the 19 agencies with 

noncompliant systems reported that these agencies had problems 

complying with one or more federal accounting standards. Auditors 

reported that agencies are having problems implementing standards that 

have been in effect for some time, as well as standards that have been 

promulgated in the last few years. For example, auditors for three 

agencies—DOD, Justice, and the Federal Emergency Management Agency 

(FEMA)—reported weaknesses in compliance with Statement of Federal 

Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, 

Plant, and Equipment, which became effective for fiscal year 1998. 

Auditors for DOD reported that DOD did not capture the correct 

25To help address deficiencies with its legacy general ledger system, as a first step in 

upgrading its overall financial management system, FHA implemented the general ledger 

module of a COTS software package on October 1, 2002. This module automates the 

monthly interface of summary-level balances with HUD’s Central Accounting and Program 

System (HUDCAPS). 

26U.S. General Accounting Office, Department of Housing and Urban Development: Status 

of Efforts to Implement an Integrated Financial Management System, GAO-03-447R 

(Washington, D.C.: Apr. 9, 2003). 

Page 13 GAO-04-209T 
acquisition date and cost of its property, plant, and equipment, due to 

system limitations. 

Therefore, DOD could not provide reliable information for reporting 

account balances and computing depreciation. Auditors for two 

agencies—HUD and Justice—reported weaknesses in compliance with 

SFFAS No. 7, Revenue and Other Financing Sources, which also became 

effective for fiscal year 1998. For example, auditors reported a material 

weakness for FHA’s budget execution and fund control. According to the 

auditors, FHA’s financial systems and processes are not capable of fully 

monitoring and controlling budgetary resources. Finally, auditors for three 

agencies—the Agency for International Development (AID), the National 

Aeronautics and Space Administration (NASA), and the Nuclear Regulatory 

Commission (NRC)—reported trouble with implementing SFFAS No. 10, 

Accounting for Internal Use Software, which became effective at the 

beginning of fiscal year 2001. For example, auditors reported that NASA’s 

policies and procedures do not specifically address purchasing software as 

part of a package of products and services. In their testing, NASA’s auditors 

identified errors for costs that were originally recorded as expenses, but 

instead should have been capitalized as assets. 

Managerial cost information is required by the CFO Act of 1990, and since 

1998 by a federal accounting standard. Auditors for five agencies reported 

problems implementing SFFAS No. 4, Managerial Cost Accounting 

Concepts and Standards. For example, auditors for DOL reported that the 

department has not developed the capability to routinely report the cost of 

outputs used to manage program operations at the operating program and 

activity levels. Moreover, DOL does not use managerial cost information 

for purposes of performance measurement, planning, budgeting, or 

forecasting. At DOT, auditors stated that its agencies, other than the 

Federal Aviation Administration (FAA) and the U.S. Coast Guard,27 have 

begun to identify requirements for implementing cost accounting systems. 

DOT’s existing accounting system, DAFIS, does not have the capability to 

capture full costs, including direct and indirect costs assigned to DOT 

programs. The Secretary recently advised OMB that as the remaining DOT 

27FAA has efforts underway to implement a cost accounting system as required by the 

Federal Aviation Reauthorization Act of 1996 (Pub. L. No. 104-264, 110 Stat. 3213, 3248 

(1996)). The U.S. Coast Guard has a cost accounting system used for determining vessel 

documentation user fees. 

Page 14 GAO-04-209T 
agencies migrate to Delphi, DOT’s new core financial system, Delphi will 

provide them with enhanced cost accounting capabilities. 

Managerial cost information is critical for implementing the PMA. 

According to the PMA, the accomplishment of the other four crosscutting 

initiatives28 will matter little without the integration of agency budgets with 

performance. Although the lack of a consistent information and reporting 

framework for performance, budgeting, and accounting may obscure how 

well government programs are performing as well as inhibit comparisons, 

no one presentation can meet all users’ needs. Any framework should 

support an understanding of the links between performance, budgeting, 

and accounting information measured and reported for different purposes. 

However, even the most meaningful links between performance results and 

resources consumed are only as good as the underlying data. Moreover, 

this link between resources consumed and performance results is 

necessary to make public-private competition decisions as part of 

competitive sourcing. Therefore, agencies must address long-standing 

problems within their financial systems. As agencies implement and 

upgrade their financial management systems, opportunities exist for 

developing cost management information as an integral part of these 

systems to provide important information that is timely, reliable, and 

useful. 

As we recently reported,29 DOD’s continuing inability to capture and report 

the full cost of its programs represents one of the most significant 

impediments facing the department. DOD does not have the systems and 

processes in place to capture the required cost information from the 

hundreds of millions of transactions it processes each year. Lacking 

complete and accurate overall life-cycle cost information for weapons 

systems impairs DOD’s and congressional decisionmakers’ ability to make 

fully informed decisions about which weapons, or how many, to buy. DOD 

has acknowledged that the lack of a cost accounting system is its largest 

impediment to controlling and managing weapon systems costs. 

28The other four crosscutting initiatives are improved financial performance, strategic 

human capital management, competitive sourcing, and expanded electronic government. 

29GAO-03-931T. 

Page 15 GAO-04-209T 
Weak Security Controls over 

Information Systems 

Information security weaknesses are one of the frequently cited reasons 

for noncompliance with FFMIA and are a major concern for federal 

agencies and the general public. These weaknesses are placing enormous 

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. Auditors for all 19 of the agencies reported 

as noncompliant with FFMIA identified weaknesses in security controls 

over information systems. Unresolved information security weaknesses 

could adversely affect the ability of agencies to produce accurate data for 

decision making and financial reporting because such weaknesses could 

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

transmitted by an agency’s financial management system. 

General controls are the policies, procedures, and technical controls that 

apply to all or a large segment of an entity’s information systems and help 

ensure their proper operation. The six major areas are (1) security 

program management, which provides the framework for ensuring that 

risks are understood and that effective controls are selected and properly 

implemented, (2) access controls, which ensure that only authorized 

individuals can read, alter, or delete data, (3) software development and 

change controls, which ensure that only authorized software programs are 

implemented, (4) segregation of duties, which reduces the risk that one 

individual can independently perform inappropriate actions without 

detection, (5) operating systems controls, which protect sensitive 

programs that support multiple applications from tampering and misuse, 

and (6) service continuity, which ensures that computer-dependent 

operations experience no significant disruption. As we discussed in our 

April 2003 testimony,

30 our analyses of audit reports issued from October 

2001 through October 2002 for 24 of the largest federal agencies31 

30U.S. General Accounting Office, Information Security: Progress Made, But Challenges 

Remain to Protect Federal Systems and the Nation’s Critical Infrastructures, GAO-03-

564T (Washington, D.C.: Apr. 8, 2003). 

31These are the Departments of Agriculture, Commerce, Defense, Education, Energy, Health 

and Human Services, Housing and Urban Development, Interior, Justice, Labor, State, 

Transportation, Treasury, and Veterans Affairs, the Environmental Protection Agency, 

Federal Emergency Management Agency, General Services Administration, Office of 

Personnel Management, National Aeronautics and Space Administration, National Science 

Foundation, Nuclear Regulatory Commission, Small Business Administration, Social 

Security Administration, and U.S. Agency for International Development. 

Page 16 GAO-04-209T 
continued to show significant weaknesses in federal computer systems that 

put critical operations and assets at risk. Weaknesses continued to be 

reported in each of the 24 agencies included in our review, and they 

covered all six major areas of general controls. Although our analyses 

showed that most agencies had significant weaknesses in these six control 

areas, weaknesses were most often cited for access controls and security 

program management. 

Since 1997, GAO has considered information security a governmentwide 

high-risk area.

32 As shown by our work and work performed by the IGs, 

security program management continues to be a widespread problem. 

Concerned with reports of significant weaknesses in federal computer 

systems that make them vulnerable to attack, the Congress enacted 

Government Information Security Reform provisions33 (commonly known 

as GISRA) to reduce these risks and provide more effective oversight of 

federal information security. GISRA required agencies to implement an 

information security program that is founded on a continuing risk 

management cycle and largely incorporates existing security policies found 

in OMB Circular A-130, Management of Federal Information Resources. 

GISRA provided an overall framework for managing information security 

and established new annual review, independent evaluation, and reporting 

requirements to help ensure agency implementation and both OMB and 

congressional oversight. 

In its required fiscal year 2002 GISRA report to the Congress, OMB stated 

that the federal government had made significant strides in addressing 

serious and pervasive information technology security problems, but that 

more needed to be done, particularly to address both the governmentwide 

weaknesses identified in its fiscal year 2001 report to the Congress and new 

challenges.34 Also, OMB reported significant progress in agencies’ 

information technology security performance, primarily as indicated by 

quantitative governmentwide performance measures that OMB required 

agencies to disclose beginning with their fiscal year 2002 reports. These 

32U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington, 

D.C.: January 2001). 

33These provisions are part of the Floyd D. Spence National Defense Authorization Act for 

Fiscal Year 2001, Pub. L. No. 106-398, 114 Stat. 1654, 1654A-266 (2000). 

34Office of Management and Budget, FY 2002 Report to Congress on Federal Government 

Information Security Reform (May 16, 2003). 

Page 17 GAO-04-209T 
include measures such as the number of systems that have been assessed 

for risk, have an up-to-date security plan, and for which security controls 

have been tested. 

As discussed in our June 2003 testimony,

35 the governmentwide 

weaknesses identified by OMB, as well as the limited progress in 

implementing key information security requirements, continue to 

emphasize that, overall, agencies are not effectively implementing and 

managing their information security programs. For example, of the 24 

large federal agencies we reviewed, 11 reported that they had assessed risk 

for 90 to 100 percent of their systems for fiscal year 2002, but 8 reported 

that they had assessed risk for less than half of their systems. 

The information security program, evaluation, and reporting requirements 

established by GISRA have been permanently authorized and strengthened 

through the recently enacted Federal Information Security Management 

Act of 2002 (FISMA).36 In addition, FISMA provisions establish additional 

requirements that can assist the agencies in implementing effective 

information security programs, help ensure that agency systems 

incorporate appropriate controls, and provide information for 

administration and congressional oversight. These requirements include 

the designation and establishment of specific responsibilities for an agency 

senior information security officer, implementation of minimum 

information security requirements for agency information and information 

systems, and required agency reporting to the Congress. 

Agencies’ fiscal year 2003 FISMA reports, due to OMB in September 2003, 

should provide additional information on the status of agencies’ efforts to 

implement federal information security requirements. In addition, FISMA 

requires each agency to report any significant deficiency in an information 

security policy, procedure, or practice relating to financial management 

systems as an instance of a lack of substantial compliance under FFMIA.37 

35U.S. General Accounting Office, Information Security: Continued Efforts Needed to Fully 

Implement Statutory Requirements, GAO-03-852T (Washington, D.C.: June 24, 2003). 

36Pub. L. No. 107-347, title III, 116 Stat. 2899, 2946 (2002). 

3744 U.S.C. 3544(c)(3). 

Page 18 GAO-04-209T 
Agency Efforts to 

Implement New Core 

Financial Systems 

The continuing trend of noncompliance with FFMIA indicates the overall 

long-standing poor condition of agency financial systems. Correcting the 

systems problems is a difficult challenge for agencies because of the age 

and poor condition of their critical financial systems. Some of the federal 

government’s computer systems were originally designed and developed 

years ago and do not meet current systems requirements. These legacy 

systems cannot provide reliable financial information for key 

governmentwide initiatives, such as integrating budget and performance 

information. 

Across government, agencies have many efforts underway to implement or 

upgrade financial systems to alleviate long-standing weaknesses in 

financial management. As we recently reported,

38 as of September 30, 2002, 

17 agencies advised us that they were planning to or were in the process of 

implementing a new core financial system.39 Of these 17 agencies, 11 had 

selected certified40 software. The other 6 agencies have not reached the 

software selection phase of their acquisition process. 

38U.S. General Accounting Office, Core Financial Systems at the 24 Chief Financial 

Officers Act Agencies, GAO-03-903R (Washington, D.C.: June 27, 2003). 

39Core financial systems, as defined by JFMIP, include managing general ledger, funding, 

payments, receivables, and certain basic cost functions. Core financial systems receive data 

from other financial and feeder systems—such as acquisition, grant, and human resource 

and payroll systems—as well as from direct user input, and provide data for financial 

performance measurement and analysis and for financial statement preparation. 

40The Program Management Office, which is managed by JFMIP’s Executive Director with 

funds provided by the CFO Council agencies, tests vendor COTS packages and certifies 

those that meet certain financial management system requirements for core financial 

systems. 

Page 19 GAO-04-209T 
Implementing a core financial system that has been certified does not 

guarantee that these agencies will have financial systems that are 

compliant with FFMIA. Certification of core financial systems and testing 

vendor COTS packages help ensure that financial management system 

requirements and the vendor software remain aligned. One critical factor 

affecting FFMIA compliance is the integration of the core financial system 

with the agency’s administrative41 and programmatic42 systems and the 

validity and completeness of data from these systems. Other factors 

affecting a COTS core financial system’s ability to comply with FFMIA 

include how the software package works in the agency’s environment, 

whether any modifications or customizations have been made to the 

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

systems. As of September 30, 2002, target implementation dates for 16 of 

the 17 agencies planning to implement new core financial systems ranged 

from fiscal years 2003 to 2008. One agency—DOD—had not yet 

determined its target date for full implementation. As shown in figure 2, 3 

of the 16 agencies—Agriculture, GSA, and NASA—planned to complete 

implementation in fiscal year 2003. Three other agencies—SSA, 

Commerce, and DOT—planned to complete their implementations in fiscal 

year 2004. The Department of Energy established fiscal year 2005 as its 

target implementation date and 3 agencies—the departments of State and 

Veterans Affairs and AID—have targeted fiscal year 2006 for completion. 

Moreover, as shown in figure 2, 4 agencies—DOL, HHS, EPA, and HUD— 

have set fiscal year 2007 as their implementation target date. Finally, 2 

agencies—the Departments of the Interior and Justice43—projected fiscal 

year 2008 for completion of their core financial systems implementation. 

41Examples of administrative systems are those common to all agencies such as budget, 

acquisition, travel, property, and payroll. 

42Programmatic systems are those needed to carry out an agency’s mission. For example, 

HHS needs a grants management system to carry out its mission. 

43Justice plans a staggered implementation of its new core financial system in its component 

agencies with target completion dates ranging from October 2004 to October 2007. 

Page 20 GAO-04-209T 
Page 21 GAO-04-209T 

Figure 2: ency Target Dates for Implementation of Core Financial Systems as of September 30, 2002

The remaining 7 of the 24 CFO Act agencies that advised us that they had 

no plans to implement a new system had either recently implemented a 

new core financial system in the last several years or were not planning to 

implement an agencywide core financial system. Five of the 7 agencies had 

fully implemented new core financial systems since the beginning of fiscal

year 2001—including the Department of Education, NSF,

44 NRC, the Small 

Business Administration (SBA), and OPM. FEMA had implemented a new 

system prior to fiscal year 2001. The remaining agency, Treasury,

45 is not 

planning to implement an agencywide core financial system, but several of 

its subcomponent agencies—including the Internal Revenue Service and 

the Office of the Comptroller of the Currency—are in the process of 

implementing core financial system software packages. 

In their performance and accountability reports, management for some 

agencies stated that full implementation of these new systems will address 

their systems’ substantial noncompliance with FFMIA. However, as 

previously mentioned, implementation of a new core financial system may 

not resolve all of an agency’s financial management weaknesses because of 

the myriad of problems affecting agencies beyond their core financial 

Labor Defense

EPA

HUD

HHS

Source: GAO.

Energy AID

State

VA

GENERAL SERVICES

ADMINISTRATION

GSA

NASA

Agriculture DOT

SSA

Commerce

Interior

DEPARTMENT OF JUSTICE

Justice

2003 2004 2005 2006 2007 2008 Not yet

determined

44NSF’s core financial system was implemented in 1992. The maintenance needed to migrate 

the system to a client-server platform was completed in April 2001. 

45Although Treasury does not have an agencywide core financial system, it does utilize 

automated tools and a central data warehouse for analysis and reporting.

Ag
systems. Nevertheless, it is imperative that agencies adopt leading 

practices to help ensure successful systems implementation. 

Successful 

Implementation of 

Financial Management 

Systems Is Key for 

Improved Financial 

Reporting 

Implementing new financial management systems provides a foundation 

for improved financial management, including enhanced financial 

reporting capabilities that will help financial managers meet OMB’s 

accelerated reporting deadlines46 and make better financial management 

decisions due to more timely information. Successful implementation of 

financial management systems has been a continuous challenge for both 

federal agencies and private sector entities. In the past, federal agencies 

have experienced setbacks and delays in their implementation processes. 

These delays were caused by various factors, including a lack of executivelevel involvement, poor communication between managers and users, and 

inadequate project planning. For example, our work at NASA has shown 

the need for consistent executive support, communication with all 

stakeholders, full identification of user requirements, and adequate 

planning. 

Recent work at NASA illustrates some of the specific problems agencies 

are encountering in implementing JFMIP-certified financial systems. In 

April 2000, NASA began its Integrated Financial Management Program 

(IFMP), its third attempt in recent years at modernizing financial processes 

and systems. NASA’s previous two efforts were eventually abandoned after 

a total of 12 years and a reported $180 million in spending. As part of this 

third effort, NASA recently implemented a new core financial module that 

was expected to provide financial and program managers with timely, 

consistent, and reliable cost and performance information for management 

decisions. However, earlier this year we reported47 that NASA’s core 

financial module was not being implemented to accommodate the 

information needed by program managers, cost estimators, and the 

Congress. The need for ongoing communication between project 

46In order to have timely, reliable and useful information OMB has required agencies to 

prepare financial statements closer to the end of the reporting period. Under the 

accelerated reporting requirements, agency performance and accountability reports for 

fiscal year 2004 are due to OMB by November 15, 2004, just 45 days after the close of the 

fiscal year. 

47U.S. General Accounting Office, Business Modernization: Improvements Needed in 

Management of NASA’s Integrated Financial Management Program, GAO-03-507 

(Washington, D.C.: Apr. 2003). 

Page 22 GAO-04-209T 
managers and systems users is crucial to any successful systems 

implementation project. Project managers need to understand the basic 

requirements of users, while users should be involved in the project’s 

planning process. NASA’s program officials chose to defer the 

development of some functions and related user requirements in order to 

expedite the systems implementation process. As a result, the new system 

will not meet the needs of some key users who will continue to rely on 

information from nonintegrated programs outside of the core financial 

module, or use other labor-intensive means, to capture the data they need 

to manage programs. 

NASA has also not followed certain other best practices for acquiring and 

implementing its new financial management system. NASA’s 

implementation plan calls for the system to be constructed using 

commercial components; however, NASA has not analyzed the 

interdependencies of the various subsystems. When constructing a system 

from commercial components, it is essential to understand the features and 

characteristics of each component in order to select compatible systems 

that can be integrated without having to build and maintain expensive 

interfaces. By acquiring components without first understanding their 

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

will not optimize mission performance, and that will cost more and take 

longer to implement than necessary. 

Private sector entities have also encountered a number of challenges and 

setbacks when implementing new systems. These challenges have 

included competition between internal organizational units, user resistance 

to the new systems, and frequent changes in management and to 

underlying corporate strategy. Entities are overcoming their challenges 

because better tools have been created to monitor and control progress 

and skilled project managers with better management processes are being 

used. 

Page 23 GAO-04-209T 
The Standish Group International, Inc.48 (Standish Group) has reported that 

the number of successful systems implementation projects in the private 

sector is increasing. From 1994 to 2000, successful projects increased from 

28,000 to 78,000. The Standish Group, through its research,49 has identified 

10 project success factors. These factors include user involvement, 

executive support, experienced project managers, firm basic requirements, 

clear business objectives, minimized scope, standard software 

infrastructure, formal methodology, reliable estimates, and other.

50 

Also, according to the Standish Group, although no project requires all 10 

factors to be successful,51 the more factors that are present in the project 

strategy, the higher the chance of a successful implementation. As 

discussed above, many of these factors have been challenges for both 

private sector and federal entities. By its very nature, the implementation 

of a new financial management system is a risky proposition. Therefore, it 

is crucial that federal departments and agencies follow accepted best 

practices and embrace as many of the key characteristics for successful 

implementation projects as possible to help minimize the risk of failed 

projects and result in systems that provide the necessary data for 

management’s needs. 

Our executive guide52 on creating value through world-class financial 

management describes 11 practices critical for establishing and 

maintaining sound financial operations. These practices include 

reengineering processes in conjunction with new technology. As a result, 

using commercial components such as COTS packages may require 

significant changes in the way federal departments conduct their business. 

According to the leading finance organizations that formed the basis for 

our executive guide, a key to successful implementation of COTS systems 

is reengineering business processes to fit the new software applications 

48The Standish Group is a well-known research advisory firm that focuses on missioncritical software applications, management techniques, and technologies. 

49The Standish Group’s research is done through focus groups, in-depth surveys, and 

extensive interviews with Fortune 500 companies. 

50Other includes small milestones, proper planning, competent staff, and ownership. 

51Successful implementation is defined as a project that is completed on time, on budget, 

and with all the features and functions originally specified. 

52U.S. General Accounting Office, Executive Guide: Creating Value Through World-class 

Financial Management, GAO/AIMD-00-134 (Washington, D.C.: April 2000). 

Page 24 GAO-04-209T 
that are based on best practices. Moreover, OMB’s former Associate 

Director for Information Technology and e-Government has stated that “IT 

will not solve management problems—re-engineering processes will.” 

The conversion of data from an old system to a new system is also critical. 

In December 2002, JFMIP issued its White Paper: Financial Systems Data 

Conversion – Considerations. The purpose of this JFMIP document is to 

raise awareness of financial systems data conversion considerations to be 

addressed by financial management executives and project managers when 

planning or implementing a new financial management system. The JFMIP 

paper addresses (1) key considerations regarding data conversion and 

cutover to the new system, (2) best approaches for completing the data 

conversion and cutover, and (3) ways to reduce the risks associated with 

these approaches. 

Status of 

Governmentwide 

Financial Management 

Improvement Efforts 

As we have discussed, the goal of FFMIA is for agencies to have timely, 

reliable, and accurate information with which to make informed decisions 

and to ensure accountability on an ongoing basis. Figure 3 shows the three 

levels of the pyramid that result in the end goal, accountability and useful 

management information. The bottom level of the pyramid is the 

legislative framework that underpins the improvement of the general and 

financial management of the federal government. The second level shows 

the drivers that build on the legislative requirements and influence agency 

actions to meet these requirements. The three drivers are 

(1) congressional and other oversight, (2) the activities of the JFMIP 

Principals, and (3) the PMA. The third level of the pyramid represents the 

key success factors for accountability and meaningful management 

information—integrating core and feeder financial systems, producing 

reliable financial and performance data for reporting, and ensuring 

effective internal control. The result of these three levels, as shown at the 

top of the pyramid, is accountability and meaningful management 

information needed to assess and improve the government’s effectiveness, 

financial condition, and operating performance. 

Page 25 GAO-04-209T 
Figure 3: Pyramid to Accountability and Useful Management Information 

Congressional Oversight 

Accountability 

and useful 

management 

information 

End goal 

Key success 

factors 

Integrated 

systems 

Reliable 

financial and 

performance data 

for reporting 

Effective 

internal 

control 

PMA 

Drivers 

CFO 

Act 

Legislative 

framework 

Government 

Management 

Reform Act 

Accountability 

of Tax Dollars 

Act of 2002 

Congressional and 

other oversight 

JFMIP 

Principals 

FFMIA 

Government 

Performance and Results Act Clinger-Cohen 

Act 

Source: GAO. 

Congressional Oversight	 The leadership demonstrated by the Congress has been an important 

catalyst to reforming financial management in the federal government. As 

previously discussed, the legislative framework provided by the CFO Act 

and FFMIA, among others, produced a solid foundation to stimulate 

needed change. For example, in November 2002, the Congress enacted the 

Accountability of Tax Dollars Act of 200253 to extend the financial 

statement audit requirements for CFO Act agencies to most executive 

branch agencies. In addition, there is value in sustained congressional 

interest in these issues, as demonstrated by hearings on federal financial 

management and reform held over the past several years. It will be key that 

the appropriations, budget, authorizing, and oversight committees hold 

agency top management accountable for resolving these problems and that 

they support improvement efforts. The continued attention by the 

53Pub. L. No. 107-289, 116 Stat. 2049 (2002). 

Page 26 GAO-04-209T 
Congress to these issues will be critical to sustaining momentum for 

financial management reform. 

JFMIP Principals	 Starting in August 2001, the JFMIP Principals have been meeting regularly 

to deliberate and reach agreements focused on financial management 

reform issues including (1) defining success measures for financial 

performance that go far beyond an unqualified audit opinion,

54 

(2) significantly accelerating financial statement reporting to improve 

timeliness for decision making, and (3) addressing difficult accounting and 

reporting issues, including impediments to an audit opinion on the federal 

government’s consolidated financial statements. This forum has provided 

an opportunity to reach decisions on key issues and undertake strategic 

activities that reinforce the effectiveness of groups such as the CFO 

Council in making progress toward federal financial management. In fiscal 

year 2002, the JFMIP Principals continued the series of these deliberative 

meetings. Continued personal involvement of the JFMIP Principals is 

critical to the full and successful implementation of federal financial 

management reform and to providing greater transparency and 

accountability in managing federal programs and resources. 

President’s Management 

Agenda and the Executive 

Branch Management 

Scorecard 

The PMA, being implemented by the administration as an agenda for 

improving the management and performance of the federal government, 

targets the most apparent deficiencies where the opportunity to improve 

performance is the greatest. While FFMIA implementation relates directly 

to the improved financial performance initiative, development and 

maintenance of FFMIA-compliant systems will also affect the 

implementation of the other four initiatives. Furthermore, the 

modernization of agency financial management systems, as envisioned by 

FFMIA, is critical to the success of all of these initiatives. Notably, OMB is 

developing a federal enterprise architecture that will affect the 

government’s ability to make significant progress across the PMA. For 

example, as part of the e-gov initiative, the number of federal payroll 

providers is being consolidated. Numerous agencies had targeted their 

payroll operations for costly modernization efforts. According to OMB, 

millions of dollars will be saved through shared resources and processes 

54These success measures include financial management systems that routinely provide 

timely, reliable, and useful financial information and no material control weaknesses or 

material noncompliance with laws and regulations as well as FFMIA. 

Page 27 GAO-04-209T 
and by modernizing on a cross-agency and governmentwide basis. The 

administration’s implementation of its Program Assessment Rating Tool 

(PART) relates specifically to the PMA initiative of integration of budget 

and performance information. Reliable cost data, so crucial to effective 

FFMIA implementation, is critical not only for the improved financial 

performance and budget and performance integration initiatives, but also 

for competitive sourcing. For effective management, this cost information 

must not only be timely and reliable, but also both useful and used. 

The administration is using the Executive Branch Management Scorecard, 

based on governmentwide standards for success, to highlight agencies’ 

progress in achieving the improvements embodied in the PMA. OMB uses a 

grading system of red, yellow, and green to indicate agencies’ status in 

achieving the standards for success for each of the five crosscutting 

initiatives. It also assesses and reports progress using a similar “stoplight” 

system. 

The focus that the administration’s scorecard approach brings to improving 

management and performance, including financial management 

performance, is certainly a step in the right direction. The value of the 

scorecard is not in the scoring per se, but the degree to which the scores 

lead to sustained focus and demonstrable improvements. This will depend 

on continued efforts to assess progress and maintain accountability to 

ensure that the agencies are able to, in fact, improve their performance. It 

will be important that there be continuous rigor in the scoring process for 

this approach to be credible and effective in providing incentives that 

produce lasting results. Also, it is important to recognize that many of the 

challenges the federal government faces, such as improving financial 

management, are long-standing and complex, and will require sustained 

attention. 

Closing Comments	 The primary purpose of FFMIA is to ensure that agency financial 

management systems routinely provide reliable, useful, and timely financial 

information so that government leaders will be better positioned to invest 

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

accountable for the way they run programs. While many agencies are 

receiving unqualified opinions on their financial statements, auditor 

determinations of FFMIA compliance are lagging behind. To achieve the 

financial management improvements envisioned by the CFO Act, FFMIA, 

and more recently, the President’s Management Agenda, agencies need to 

modernize their financial systems to generate reliable, useful, and timely 

Page 28 GAO-04-209T 
financial information throughout the year and at year-end. However, as we 

have discussed today, agencies are facing significant challenges in 

implementing new financial management systems. We are seeing a strong 

commitment from the President, the JFMIP Principals, and the Secretaries 

of major departments to ensure that these needed modernizations come to 

fruition. This commitment is critical to the success of the efforts under 

way as well as those still in a formative stage, and must be sustained. 

Finally, Mr. Chairman, the leadership demonstrated by you and the 

members of this Subcommittee is an important catalyst to reforming 

financial management in the federal government. Continued attention to 

these issues will be critical to sustaining momentum on financial 

management reforms. 

Mr. Chairman, this concludes my statement. I would be pleased to answer 

any questions you or other members of the Subcommittee may have at this 

time. 

Contacts and 	 For further information about this statement, please contact Kay L. Daly at 

(202) 512-9312. Other key contributors to this testimony include Sandra S. Acknowledgments Silzer and Bridget A. Skjoldal. 

(193052) Page 29 GAO-04-209T 
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