Ta ble of Con tents

Ex ec u tive Sum mary......................................................................................................... 1

The Chief Fi nan cial Of fi cers Coun cil........................................................................... 5

The Ex ec u tive Branch Man age ment Score card: Mea suring Re sults...................... 8

Chal lenges to Im proved Fi nan cial Per for mance ......................................................... 11

Fi nan cial Sys tems ................................................................................................ 11

Ma te rial Weak nesses............................................................................................. 13

Er ro ne ous Pay ments ............................................................................................. 15

As set Man age ment................................................................................................ 16

Se ri ous Fi nan cial Man age ment Prob lems at the De part ment of De fense.......... 17

Intragovernmental Trans ac tions............................................................................ 18

Bud geting for Re sults........................................................................................... 19

Com mit tees of the Chief Fi nan cial Of fi cers Coun cil.................................................. 21

Best Prac tices Com mit tee..................................................................................... 21

Bud get and Per for mance In te gra tion Committee ................................................ 22

Er ro ne ous Pay ments Committee .......................................................................... 23

Fi nan cial State ment Ac cel er a tion Committee...................................................... 25

Fi nan cial Sys tems and E-Government Committee.............................................. 28

Hu man Cap i tal Committee................................................................................... 29

Ap pen dices:

Ap pen dix A: Sum mary of FY 2001 Fi nan cial State ment Re sults by Agencies

 and Se lected Com po nents........................................................ 33

Ap pen dix B: Ma te rial Weak nesses Re ported by Au di tors and Fed eral

 Man agers’ Fi nan cial In teg rity Act Ta bles................................ 35

Ap pen dix C: Gov ern ment Cor po ra tions Re quired to Sub mit Au dited

 Fi nan cial State ments to OMB.................................................. 39

Ap pen dix D: Base line Score card Grades as of Sep tem ber 30, 2001.................. 41

i
Ex ec u tive Sum mary

Within weeks of his in au gu ra tion, Pres i dent George W. Bush un veiled his first bud get, A Blue -

print for a New Be gin ning. His bud get in cluded an am bi tious and un prec e dented agenda for

im prov ing the man age ment of the Fed eral Gov ern ment. Six months later he is sued the Pres ident’s Man age ment Agenda, which out lines spe cific goals and strat e gies to ad dress the fed eral

gov ern ment’s most press ing man age ment is sues. In his agenda, Pres i dent Bush out lines five

gov ern ment-wide and nine agency-specific ar eas that need re vamp ing to better serve the Ameri can peo ple. One of the five Gov ern ment-wide tar gets is to im prove fi nan cial per for mance by

en sur ing that Fed eral fi nan cial man age ment sys tems pro duce ac cu rate, timely, and use ful in forma tion to sup port op er at ing, bud get, and pol icy de ci sions, and to man age and re duce the ex tent

of er ro ne ous pay ments in Fed eral pro grams. This Fed eral Fi nan cial Man age ment Re port de -

scribes the fi nan cial per for mance chal lenges fac ing the Fed eral Gov ern ment, chron i cles ef forts

dur ing the past year to re solve is sues, and out lines strat e gies for fu ture im prove ment.

In light of the events of Sep tem ber 11 and the enor mous re source de mands placed upon a Nation at war, now more than ever it is crit i cal that we max i mize the use of ev ery tax dol lar to

en sure the safety of Amer ica and its cit i zens. This Ad min is tra tion be lieves that Amer i cans

should be able to com pare per for mance and cost across pro grams to en sure the ef fec tive and

ef fi cient op er a tion of the Fed eral Gov ern ment. Such com par i sons must be based upon ac cu -

rate, timely, and con sis tent fi nan cial in for ma tion. Trans par ency in fi nan cial re port ing is cru cial

when mak ing the hard choices about where to al lo cate re sources. As a prime ex am ple, the Fi -

nan cial Re port of the United States Gov ern ment for Fis cal Year (FY) 2001 stated a fact that

has im pli ca tions for our fi nan cial fu ture as a Na tion. For the first time ever, re tire ment ben e fit

li a bil i ties for Fed eral ci vil ian and mil i tary re tir ees and vet eran com pen sa tion bene fits ex ceeded

debt held by the pub lic as our great est li a bil ity. Fi nan cial state ments rec og nize li a bil i ties/expenses when they are in curred, and the bud get gen er ally re flects costs when paid. The FY

2001 fi nan cial state ments in cluded a “catch up” li a bil ity that will re sult in sig nif i cant and rising costs for each sub se quent bud get year, a con se quence of ex panded re tire ment health ben efits granted to mil i tary re tir ees in the FY 2001 De fense Au tho ri za tion Act. 

The Pres i dent ad vo cates an ac tive but lim ited gov ern ment that fo cuses on pri or i ties and ex ecutes them well. Through the frame work of the Pres i dent’s Man age ment Agenda, this Ad minis tra tion is de ter mined to tackle and re solve se ri ous man age ment chal lenges that defy quick solu tions—yet pose ma jor risks to per for mance and ac count abil ity of ma jor gov ern ment

pro grams and op er a tions. Re ferred to as “high risk” or ma te rial weak nesses, these prob lems

have been iden ti fied through nu mer ous au dit re ports and agency re views of op er a tions. Many

Federal Financial Management Report 1
have plagued the agen cies for years. Be gin ning with the FY 2004 bud get cy cle, which will

be gin this sum mer, agen cies will be ex pected to sub mit with their bud get re quests clear and

con cise plans for fix ing the un der ly ing con di tions that spawn these prob lems, along with am bitious timelines and mile stones for which agency of fi cials will be held ac count able.

The Pres i dent’s em pha sis on per for mance and ac count abil ity has en er gized the Chief Fi nan cial

Of fi cers (CFO) Coun cil as well. Rather than pur sue an ar ray of fi nan cial per for mance initia -

tives, the Coun cil has re struc tured its com mit tees to ad dress the glar ing prob lems iden tified by

the five gov ern ment-wide ar eas in the Pres i dent’s Man age ment Agenda. The Coun cil is working closely with the other in ter agency Coun cils to re solve cross cut ting is sues and fur ther the

Pres i dent’s ini tia tives. For ex am ple, the CFO Coun cil has formed a joint work ing group with

the In spec tors Gen eral through the Pres i dent’s Coun cil on In teg rity and Ef fi ciency and the Exec u tive Coun cil on In teg rity and Ef fi ciency to re duce er ro ne ous pay ments to ben e fi cia ries.

Un der the lead er ship of the De part ment of Health and Hu man Ser vices, the 26 grant-making

de part ments and agen cies have pro jects un der way to tran si tion the en tire grants pro cess to an

elec tronic for mat, thus sim pli fy ing the pro cess, sav ing time and re sources for grant ees and the

Fed eral Gov ern ment and, at the same time, en sur ing that grant funds are used for their intended pur poses. 

For fi nan cial in for ma tion to be use ful, it must be re li able and avail able on a reg u lar ba sis, not

just once a year as of Sep tem ber 30, and five months af ter the fact. To en sure that fi nan cial

and per for mance in for ma tion is avail able to the Pres i dent and the Ex ec u tive Branch dur ing the

bud get for mu la tion timeframe, the Of fice of Man age ment and Bud get (OMB) is ac cel er at ing

the due date for au dited agency fi nan cial state ments from Feb ru ary 27 in 2001 to No vem ber

15 in 2004. The gov ern ment-wide fi nan cial state ments will then be com pleted by De cem ber

15, in stead of at the end of March, as is the cur rent prac tice. OMB also is re quir ing agen cies

to pro duce com par a tive and in terim re ports. To meet these ac cel er ated due dates, agen cies

must re in vent their busi ness pro cesses and im prove their sys tems to pro duce more readily the

fi nan cial in for ma tion nec es sary to pre pare fi nan cial state ments. 

In ad di tion, the FY 02 state ments, due in Feb ru ary 2003, agen cies will be re quired to sub mit

com bined Per for mance and Ac count abil ity Re ports, which will con tain the au dited fi nan cial

state ments and performance in for ma tion, thus pro vid ing a more com plete pic ture of an

agency’s prog ress and re sults achieved. In te gra tion of per for mance in for ma tion with the budget is an other of the five gov ern ment-wide ini tia tives of the Pres i dent’s Man age ment Agenda. 

Acceleration of the timeframes for pro duc ing fi nan cial and per for mance in for ma tion will mean

that the Pres i dent, Con gress, and the Amer i can peo ple will have vi tal fi nan cial and per formance in for ma tion avail able to make in formed de ci sions about the use of Amer ica’s re sources

be fore they are al lo cated through the bud get pro cess. 

2 Federal Financial Management Report
OMB is not wait ing for these fu ture events. The Ad min is tra tion launched with the FY 2003

Bud get a pro cess that seeks to re in force provably strong pro grams and to re di rect funds in

some cases from pro grams that de mon stra bly fail, or can not of fer ev i dence of suc cess. Based

on all the in for ma tion we could gather, we have made judg ments about whether pro grams are

ef fec tive, in ef fec tive, or, where data was sim ply un avail able, that the level of pro gram ef fective ness was un known. We seek to change the bur den of proof, ask ing agen cies and ad vo cates

to sup ply ev i dence of pro gram ef fec tive ness in stead of as sum ing ef fec tive ness in the ab sence

of ev i dence to the con trary. 

To re in force the Bud get and Per for mance In te gra tion ini tia tive, OMB is work ing to es tab lish

ef fec tive ness rat ings for ap prox i mately 20 per cent of Fed eral pro grams that will be pub lished

with the Pres i dent’s FY 2004 Bud get. OMB al ready has be gun an ex ten sive ef fort to iden tify

a sub set of pro grams and eval u a tion met rics for these pro grams. In ad di tion, OMB is de vel oping eval u a tion met rics for sev eral ma jor cross cut ting, gov ern ment-wide func tions. Con sis tent

with this ef fort, the Pres i dent sub mit ted to Con gress on Oc to ber 1, 2001, leg is la tion that would

make the nec es sary stat u tory changes to en sure that ap pro pri a tions charge em ployee costs to

the agency ac counts where the in di vid u als are em ployed. The Pres i dent’s full cost ac counting

pro posal sim ply makes a change in the way those ben e fits are ac counted for so that we can get

a more ac cu rate sense of the full cost of gov ern ment pro grams. 

All of these steps are de signed to achieve the spirit of the Gov ern ment Per for mance and Results Act of 1993, rather than sim ply com ply with the re quire ments of what has be come in

most cases just a pa per work ex er cise.

In an other ef fort to im prove fed eral fi nan cial man age ment, in Au gust 2001, the Prin ci pals of

the Joint Fi nan cial Man age ment Im prove ment Pro gram (JFMIP) be gan meet ing reg u larly to

ad dress long-standing is sues con front ing the Fed eral fi nan cial com mu nity. These is sues in -

clude cost ac count ing, trans par ency in ac count ing, and the qual ity of fi nan cial sys tems, as well

as fi nan cial state ment prep a ra tion and ac cel er a tion. JFMIP’s Prin ci pals in clude the Di rec tor of

OMB, the Sec re tary of the Trea sury, the Di rec tor of the Of fice of Per son nel Man age ment, and

the Comp trol ler Gen eral. The Prin ci pals also agreed to re con sti tute the Fed eral Ac counting

Stan dards Ad vi sory Board (FASAB), which pro mul gates gen er ally ac cepted ac count ing prin ciples (GAAP) for the Fed eral Gov ern ment. Mem ber ship on FASAB has been re con fig ured to

in crease pri vate sec tor rep re sen ta tion. This step will strengthen the Board’s in de pend ence

while add ing pri vate sec tor per spec tives and ex per tise to the Fed eral Gov ern ment’s ac count ing

prac tices. 

This Ad min is tra tion is com mit ted to achiev ing real and last ing im prove ments in Fed eral fi nancial per for mance. We are off to a good start. Al though the gov ern ment-wide fi nan cial statements re ceived a dis claimer for the fifth year in a row, CFOs and their agency heads are makFederal Financial Management Report 3
ing steady prog ress to ward re mov ing the two key im ped i ments to a clean opin ion. First, the

De part ment of De fense has launched a ma jor ini tia tive to clean up its poor fi nan cial man age -

ment by de vel op ing and con sol i dat ing its fi nan cial ar chi tec ture and sys tems. Sec ond, OMB

and the De part ment of the Trea sury are lead ing an ef fort to de velop ac cu rate ac count ing and

stan dard ized pro cesses for bil lions of dol lars of trans ac tions among Fed eral Gov ern ment en tities. For the FY 2001 re port ing cy cle, we saw mod est, but gen u ine im prove ment in agen cies’

fi nan cial re port ing. Eigh teen of the 24 ma jor agen cies re ceived clean opin ions on their fi nancial state ments. The De part ments of Trans por ta tion and Jus tice moved up and re ceived clean

opin ions, while two agen cies with pre vi ously clean opin ions slipped. The two agen cies that

lost their clean opin ions––the Na tional Aero nau tics and Space Ad min is tra tion and the Fed eral

Emer gency Man age ment Agency––are al ready hard at work to re solve the is sues that clouded

their fi nan cial state ments.

The CFO Coun cil will con tinue to play a vi tal role in our ef forts to im prove fi nan cial per for -

mance. The chal lenges we face are for mi da ble, but with sus tained en ergy and re sources targeted at the pri or i ties iden ti fied by the Pres i dent’s Man age ment Agenda, I am con fi dent that

we will achieve the last ing man age ment im prove ments en vi sioned by the Pres i dent. 

Mark W. Everson

Con trol ler

4 Federal Financial Management Report
The Chief Financial Officers Council

The CFO Act of 1990 cre ated the CFO Coun cil as a mech a nism to ad vise and co or di nate the

ac tiv i ties of the agen cies of its mem bers on such mat ters as con sol i da tion and mod ern iza tion of

fi nan cial sys tems, im proved qual ity of fi nan cial in for ma tion, fi nan cial data and in for ma tion

stan dards, in ter nal con trols, leg is la tion af fect ing fi nan cial op er a tions and or ga ni za tions, and

other fi nan cial man age ment mat ters. The CFO Coun cil con sists of the CFOs and Dep uty

CFOs of the 24 ma jor Fed eral de part ments and agen cies cov ered by the CFO Act of

1990—col lec tively known as the “CFO Act agen cies.” The Dep uty Di rec tor for Man age ment

at OMB chairs the Coun cil. Other mem bers in clude the Con trol ler, Of fice of Fed eral Fi nan cial 

Man age ment, OMB, and the Fis cal As sis tant Sec re tary of the Trea sury. Two-thirds of the

CFOs are ap pointed by the Pres i dent with the ad vice and con sent of the Sen ate.

CFO Act agencies include:

De part ment of Ag ri cul ture

De part ment of Com merce

De part ment of De fense

De part ment of Ed u ca tion

De part ment of En ergy

De part ment of Health and Hu man Ser vices

De part ment of Housing and Ur ban De vel op ment

De part ment of the In te rior

De part ment of La bor

Department of Justice

Department of State

Department of Transportation

Department of the Treasury

Department of Veterans Affairs

Agency for International Development

Environmental Protection Agency

Federal Emergency Management Agency

General Services Administration

National Aeronautics and Space Administration

National Science Foundation

Nuclear Regulatory Commission

Office of Personnel Management

Small Business Administration

Social Security Administration

Federal Financial Management Report 5
The Ex ec u tive Branch Man age ment Score card:

Mea suring Re sults

The Ad min is tra tion is us ing an Ex ec u tive Branch Man age ment Score card to en sure ac countabil ity for per for mance and track re sults to ward achiev ing the goals of the Pres i dent’s Man agement Agenda. The score card em ploys a sim ple “traf fic light” grad ing sys tem com mon to day in

well-run busi nesses. Based upon a com pre hen sive set of stan dards, an agency is “green” if it

meets all of the stan dards for suc cess, “yel low” if it has achieved some but not all of the crite -

ria, and “red” if it has even one of a num ber of se ri ous flaws. “Getting to green” on the Ex ecu tive Branch Man age ment Score card will re quire sig nif i cant and sus tained ef fort by Fed eral

agen cies, but will re sult in un prec e dented im prove ments in the man age ment of the Fed eral

Gov ern ment. The score card cur rently tracks 23 of the 24 CFO Act agen cies, the U.S. Army

Corps of En gi neers, OMB, and the Smith so nian In sti tu tion.

The grades on the Ex ec u tive Branch Man age ment Score card sub mit ted with the FY 2003 Presi dent’s Bud get could be de scribed as a “sea of red.” The Ad min is tra tion’s base line eval ua tion

of de part ments and agen cies against the stan dards for suc cess for the five gov ern ment-wide

ini tia tives shows mostly poor scores with 85 per cent red—and only one green rat ing in Improved Fi nan cial Per for mance at the Na tional Sci ence Foun da tion. The stan dards for Improved Fi nan cial Per for mance (see next page) are am bi tious, but must be met to en sure progress in all of the Pres i dent’s man age ment ini tia tives. They were re viewed by the Prin ci pals of

the JFMIP, which in clude the Sec re tary of the Trea sury, the Comp trol ler Gen eral, and the Direc tors of OMB and the Of fice of Per son nel Man age ment. The Ad min is tra tion is set ting the

stan dards by which fi nan cial man age ment will be mea sured, rather than re act ing to as sessments of Ex ec u tive Branch per for mance by the Con gress, the Gen eral Ac count ing Of fice, and

oth ers. The chart that fol lows shows the Sep tem ber 30, 2001 base line grades for Im proved Finan cial Per for mance for each agency. Ap pen dix D pro vides a sum mary dis cus sion of these

grades.

Federal Financial Management Report 7
8 Federal Financial Management Report

Executive Branch

Management Scorecard

Financial Management*

* FY 2001 Baseline Evaluation -- NASA and SBA will now move to red.

USDA

Commerce

DOD

Education

Energy

EPA

HHS

HUD

DOI

DOJ

DOL

State

DOT

Treasury

VA

USAID

Corps of Engineers

FEMA

GSA

NASA

NSF

OMB

OPM

SBA

Smithsonian

SSA
Green Yel low Red

Must Meet All Core

Criteria:

Achievement of Some

but not All Core

Criteria; No Red

Conditions:

Has Any One of the

Following Conditions:

• Financial

management systems

meet Federal financial

management system

requirements and

applicable Federal

accounting and

transaction standards

as reported by the

agency head.

• Financial

management systems

fail to meet Federal

financial management

systems requirements

and applicable

Federal accounting

standards as reported

by the agency head.

• Accurate and timely

financial information.

• Chronic or significant

Anti-deficiency Act

violations.

• Integrated financial

and performance

management systems

supporting day-to-day

operations.

• Agency head unable

to provide unqualified

assurance statement

as to systems of

management,

accounting, and

administrative

controls.

• Unqualified and

timely audit opinion

on the annual

financial statements;

no material internal

control weaknesses

reported by the

auditors.

• Auditors cite material

non-compliance with

laws and regulations,

or repeat material

internal control

weaknesses; or are

unable to express an

opinion on the annual

financial statements.

Federal Financial Management Report 9
Chal lenges to Im proved Fi nan cial Per for mance

The stan dards for “getting to green” are sim i lar to those you would ex pect to find in a well-run

pri vate sec tor or ga ni za tion, but ap plied to Fed eral Gov ern ment agen cies. “Getting to green”

will take fo cused and sus tained agency lead er ship. The ul ti mate goal is to en sure trans par ency

over the gov ern ment’s fi nances—hav ing timely and re li able fi nan cial in for ma tion on a reg u lar,

re cur ring ba sis and us ing that in for ma tion to make in formed de ci sions about agency or program man age ment. Trans par ency means know ing the costs and mea sur able re sults of gov ernment pro grams and op er a tions and be ing able to judge the best re turn on in vest ment for the

Amer i can peo ple. The key ob sta cles to achiev ing Im proved Fi nan cial Per for mance are described be low.

Fi nan cial Sys tems

To pro vide timely and re li able in for ma tion, agency fi nan cial sys tems must tran si tion to busi -

ness pro cesses and in ter nal con trols that “build in” data qual ity at the start of the trans ac tion.

With the ac cel er ated re port ing timeframes man dated by OMB, agen cies sim ply will not have

time to con duct the cum ber some, man ual rec on cil i a tion pro cesses that have pro duced fi nan cial

state ments in the past. Agencies must stan dard ize busi ness rules and fi nan cial data, in te grate

data, and make greater use of elec tronic pro cesses.

The cur rent in ven tory of Fed eral fi nan cial sys tems is not well po si tioned to meet this higher

bar. Agency au dit re ports pro vide a lit any of lim i ta tions: sig nif i cant num bers of agen cies with

in ad e quate rec on cil i a tion pro ce dures, lack of timely and ac cu rate re cord ing of transac tions,

poor fi nan cial sys tem in te gra tion, non com pli ance with ac count ing stan dards, and weak in forma tion se cu rity. 

Many agen cies have worked around sys tems prob lems for years to ob tain clean au dit opinions—but this suc cess ful au dit out come was achieved only by ex pend ing sig nif i cant re sources

and mak ing ex ten sive man ual ad just ments af ter the end of the fis cal year. The re sult is a five

month old snap shot of the agency’s fi nan cial po si tion as of Sep tem ber 30 of any given

year—in ter est ing per haps, but not valu able for day-to-day de ci sion-making. For some agencies, these ac cel er ated dates must be met us ing an ti quated sys tems. Agencies will need to under take a com bi na tion of ini tia tives, and al ter na tive strat e gies in clud ing us ing re-engineered

busi ness pro cesses un til new sys tems can be brought up.

Federal Financial Management Report 11
The FY 2001 fi nan cial state ments of the 24 CFO Act agen cies dem on strated mod est but impor tant prog ress in im prov ing fi nan cial per for mance. As in the FY 2000 re ports, 18 agen cies

re ceived unqual i fied opin ions, al though the gov ern ment-wide state ment was dis claimed. Four

agen cies re ceived dis claim ers of opin ion, and two re ceived qual i fied opin ions. Five agencies––the De part ments of Jus tice, Trans por ta tion, Ed u ca tion, and Ag ri cul ture and the Agency

for In ter na tional De vel op ment––showed marked im prove ment in the qual ity of their fi nan cial

state ments. The De part ments of Jus tice and Trans por ta tion im proved and re ceived clean opin -

ions this past year. The De part ment of Ed u ca tion re duced its ma te rial weak nesses from three to

only one. For the first time ever, three of five com po nents of the De part ment of Ag ri cul ture

ob tained clean opin ions; a fourth re ceived a qual i fied opin ion. The U.S. For est Ser vice is the

only ma jor re main ing prob lem area hold ing back the De part ment of Ag ri cul ture from a clean

opin ion. This is also the first year the Agency for In ter na tional De vel op ment was able to con -

duct a com plete fi nan cial state ment au dit; three of the five prin ci pal fi nan cial state ments received qual i fied opin ions, rather than dis claim ers. Two agen cies––the Fed eral Emer gency

Man age ment Agency and the Na tional Aero nau tics and Space Ad min is tra tion––de te ri o rated

from last year, but al ready have rig or ous plans in place to re gain their clean opin ions. While

the FY 2001 re sults show prog ress, the stan dards for suc cess in Im proved Fi nan cial Per formance are am bi tious, and “get ting to green” across the board will re quire much more work.

(Ap pen dix A lists the re sults of both CFO Act agency and com po nent au dits for FY 2001.)

12 Federal Financial Management Report

Results of FY 2001

Agency Financial Audits

Improvement

Clean: DOJ, DOT

Qualified: Education

Disclaimers: USDA, USAID

Unchanged

Clean: Commerce, HHS,

HUD, DOE, DOI, DOL,

State, Treasury, VA,

EPA, GSA, NRC, NSF,

OPM, SBA, SSA

Disclaimer: DOD

Deterioration

Qualified: FEMA

Disclaimer: NASA
Ma te rial Weak nesses

Ob vi ously, one of the great est bar ri ers to ad e quate fi nan cial sys tems and in for ma tion is the fact

that Fed eral agen cies are plagued by re peat ma te rial con trol weak nesses––ar eas so prob lematic 

year af ter year that they det ri men tally af fect the re li abil ity of fi nan cial in for ma tion and could

en dan ger pro gram de liv ery. These weak nesses are high lighted by sev eral sources. In de pend -

ent au di tors cite weak nesses in in ter nal con trol over fi nan cial re port ing in their re ports that accom pany the agen cies’ au dited fi nan cial state ments. Au di tors cited 61 and 64 ma te rial weak -

nesses through out the Fed eral Gov ern ment in 2000 and 2001, respectively. The fol low ing pie

chart shows the dis tri bu tion of these weak nesses by cat e gory:

In ad di tion to the ma te rial weak nesses re lated to fi nan cial re port ing dis closed by the au di tors,

the Fed eral Man agers’ Fi nan cial In teg rity Act (FMFIA) of 1982 and OMB im ple ment ing guidance re quire the head of each ex ec u tive agency to re port an nu ally on whether there is rea son -

able as sur ance that the agency’s con trols are achiev ing their in tended ob jec tives and whether

the agency’s fi nan cial man age ment sys tems con form to gov ern ment-wide re quire ments.

Federal Financial Management Report 13

Auditor Material Weaknesses

by Category

11

11

8 10

7

4

13

Financial Systems

Computer Security

Accounting Issues

Property

Financial Statement

Reporting

Fund Balance

w/Treasury

Other
Agency heads are re quired to iden tify ma te rial weak nesses re lated to agency pro grams and oper a tions (pur su ant to Sec tion 2 of FMFIA) and nonconformances with gov ern ment-wide fi nancial sys tems re quire ments (pur su ant to Sec tion 4 of FMFIA). Sec tion 2 seeks to as sess agency 

in ter nal con trols nec es sary to en sure com pli ance with ap pli ca ble laws; pro tect against loss

from waste, fraud, and abuse; and to en sure cer tain re ceiv ables and ex pen di tures are prop erly

re corded. Sec tion 4 nonconformances deal with weak nesses in Fed eral ac count ing sys tems.

From 2000 to 2001, the num ber of FMFIA weak nesses and nonconformances dropped by

three—from 422 to 419. The chart be low shows only min i mal achieve ment in the past two

years; Ap pen dix B lists the num bers of au di tor-reported ma te rial weak nesses and FMFIA mate rial weak nesses and nonconformances by agency. Eighty-four per cent of the open Sec tion 2

FMFIA ma te rial weak nesses re late to just five agen cies: the De part ments of Ag ri cul ture, De -

fense, En ergy, the In te rior, and the Trea sury. Eighty-one per cent of the open Sec tion 4 ma te -

rial weak nesses re late to the De part ment of De fense.

FMFIA Is sues Iden tified by Agency Heads

Section 2

(In ter nal Con trol

Weak nesses)

Section 4 (Sys tems

Nonconformances)

Be gin ning in FY 2000 ........ 257 205

New..................... 62 6

Re solved.................. 88 20

End ing FY 2000 ............ 231 191

New..................... 70 6

Re solved.................. 70 9

End ing FY 2001 ............ 231 188

In ad di tion to the is sues dis cussed above, many of the CFO Act agen cies face chal lenges in

build ing and main tain ing fi nan cial man age ment sys tems that com ply with the Fed eral Fi nan cial

Man age ment Im prove ment Act (FFMIA). Un der FFMIA, the agency head cer ti fies whether or

not the agency is in sub stan tial com pli ance with the three re quire ments of FFMIA: agency finan cial man age ment sys tems must com ply sub stan tially with (1) Fed eral fi nan cial man age ment 

sys tems re quire ments; (2) Fed eral ac count ing stan dards; and (3) the U.S. Gov ern ment Stan dard 

14 Federal Financial Management Report
Gen eral Led ger at the trans ac tion level. At the end of 2001, only 8 of the 24 CFO Act agency

heads could cer tify that their agen cies were FFMIA-compliant.

Er ro ne ous Pay ments

One area of par tic u lar vul ner a bil ity is er ro ne ous pay ments. Fed eral agen cies make tril lions of

dol lars of ben e fit pay ments each year. Au dits and in ves ti ga tions con tinue to dis close pay ments

made in er ror or as the re sult of fraud or abuse. In fact, agency fi nan cial state ments have dis -

closed more than $20 bil lion in er ro ne ous pay ments in just a few Fed eral pro grams.

In the Pres i dent’s Man age ment Agenda, Pres i dent Bush an nounced his in ten tion to ad dress the

prob lem of er ro ne ous pay ments made in Fed eral ben e fit pro grams: 

Fed eral agen cies re cently iden ti fied $20.7 bil lion in er ro ne ous ben e fit and as sis tance payments as so ci ated with just 13 pro grams. That amount rep re sents more than the to tal annual ex pen di tures of seven states . . . The Ad min is tra tion will first es tab lish a base line of

the ex tent of er ro ne ous pay ments . . . OMB will work with agen cies to es tab lish goals to

re duce er ro ne ous pay ments for each pro gram. 

To match the com mit ment in the Pres i dent’s Man age ment Agenda, OMB pro vided guid ance to

agen cies on how to pro vide er ro ne ous pay ment data with their an nual bud get sub mis sions, as -

sess ments of agency in ter nal con trols, and ac tion plans to re duce er ro ne ous pay ments. The

guid ance in cluded a list of 57 Fed eral pro grams re spon si ble for dis trib ut ing more than $1.2

tril lion each year.

Many agen cies com plied with bud get re quire ments to sup ply es ti mates of er ro ne ous pay ments

and set tar gets to re duce them. Some agen cies pro vided sub stan tive plans to es ti mate and re -

duce er ro ne ous pay ments. Oth ers ini tially at tempted to jus tify why no es ti mate was nec es sary. 

In ad e quate, some plans and jus ti fi ca tions are be ing strength ened.

In FY 2001, Medicare made er ro ne ous pay ments of $12.1 bil lion (6.3 per cent) and HUD made

er ro ne ous rental sub sidy pay ments of $3.281 bil lion (10.7 per cent). Pro grams like Medicare

and Mil i tary Health have shown trends in re duc ing er ro ne ous pay ments rates, while oth ers

show an in crease in their rates. All agen cies, how ever, are show ing a re newed com mit ment to

re duc ing these es ti mates. For in stance, the De part ment of Housing and Ur ban De vel op ment

has set a goal to re duce er ro ne ous rental sub sidy pay ments by 50 per cent by 2005. 

The Ad min is tra tion is fo cused on re duc ing er ro ne ous pay ments in the gov ern ment’s ma jor bene fit pro grams. While the na tional Food Stamp er ro ne ous pay ment rate fell from 8.91 per cent

in FY 2000 to 8.6 per cent in FY 2001, the De part ment of Ag ri cul ture is ag gres sively en forc ing

its qual ity con trol pro gram in states with high er ror rates. For ex am ple, for the first time ever,

Federal Financial Management Report 15
Cal i for nia and Mich i gan, with Food Stamp pay ment er ror rates of 17.37 per cent and 13.93 percent re spec tively, are be ing assesed cash sanc tions called for un der the law. 

Many of the pro grams the Ad min is tra tion is mon i tor ing in the area of er ro ne ous pay ments are

ad min is tered through third par ties: states, lo cal i ties, non-profits, etc. Agencies must have the

tools they need to hold these third par ties ac count able for the ad min is tra tion of Fed eral funds. 

The Farm Bill, now Pub lic Law 107–171, se verely lim its the au thor ity of the De part ment of

Ag ri cul ture’s Food and Nu tri tion Ser vice to hold states ac count able for the ad min is tra tion of

the Food Stamps pro gram. The Ad min is tra tion was dis ap pointed with these pro vi sions and

will work with the Con gress to en sure the in teg rity of pro grams that pro vide ben e fits to Amer -

i can peo ple in need.

Agencies will con tinue to es ti mate, track, and mon i tor er ro ne ous pay ment rates in the programs they ad min is ter. A re cent re port by the In ter nal Rev e nue Ser vice said of er ro neous payments in the Earned In come Tax Credit (EITC) pro gram, “Of the es ti mated $31.3 bil lion in

EITC claims made by tax pay ers who filed re turns in 2000 for tax year 1999, it is es ti mated

that ap prox i mately $8.5 to $9.9 bil lion (27.0 per cent to 31.7 per cent) should not have been

paid.” This es ti mate rep re sents the 1999 tax year and is not in cluded in the over all er ro ne ous

pay ment es ti mate. Trea sury has con vened a high-level task force to ad dress these prob lems.

As set Man age ment

The bal ance sheet of the Fed eral Gov ern ment shows a his tor i cal value of over $900 bil lion in

phys i cal and fi nan cial as sets. This es ti mate is not com pre hen sive be cause it does not in clude

nat u ral re sources, stew ard ship land (na tional parks, for ests, and graz ing lands), na tional defense as sets, or her i tage as sets (e.g., the Hope Di a mond). Man aging and main tain ing the as -

sets listed on the gov ern ment’s bal ance sheet rep re sents an ef fort that con sumes sub stan tial

Fed eral re sources in staff time and ad min is tra tive costs. Sound as set man age ment is criti cal to

ef fi cient gov ern ment op er a tions and ef fec tive fi nan cial man age ment. Im proved as set man agement en ables better agency per for mance and can pro duce bud get ary sav ings, al low ing staff re -

sources to be re di rected to wards the agency’s core mis sion. Yet, there is sub stan tial ev i dence

of weak nesses in the Fed eral Gov ern ment’s man age ment of as sets, in clud ing ac quir ing and re -

tain ing un needed or poorly per form ing as sets, ex cess hold ing costs, and in ef fec tive as set disposal. Agencies are ham pered in their ef forts to iden tify and cor rect these prob lems by the

lack of strat e gies, pro ce dures, in for ma tion, and in cen tives needed to man age a wide range of

as sets.

OMB is de vel op ing a mech a nism to mea sure agency prog ress in ad dress ing the chal lenges asso ci ated with as set man age ment. As set man age ment is in te gral to an agency’s ef forts to im -

prove its fi nan cial man age ment. We ex pect to in clude as set man age ment in the cri te ria we use

16 Federal Financial Management Report
to mea sure prog ress to ward achiev ing the Im proved Fi nan cial Per for mance ini tia tive. This effort will be aimed at im ple ment ing prin ci ples and sys tems for ef fec tive as set man age ment;

trans fer ring un needed as sets out of the Fed eral in ven tory; outsourcing, where ap pro pri ate, as set

man age ment ac tiv i ties to the pri vate sec tor.

As part of his Free dom to Man age initiative, the Pres i dent sub mit ted to Con gress leg is la tion to

give Fed eral agen cies the tools and in cen tives they need to im prove as set man age ment. Included in the Man a ge rial Flex i bil ity Act, which the Pres i dent sent to Con gress in Oc to ber

2001, were pro vi sions to im prove life cy cle plan ning and man age ment; al low greater flex i bil ity

to op ti mize as set per for mance; and pro vide in cen tives for better prop erty man age ment.

Se ri ous Fi nan cial Man age ment Prob lems at the De part ment of De fense

The larg est im ped i ment to re mov ing the dis claimer on the gov ern ment-wide fi nan cial statements re mains the De part ment of De fense’s (DOD) se ri ous fi nan cial man age ment prob lems.

These prob lems are per va sive, com plex, long-standing, and deeply rooted in vir tu ally all business op er a tions through out the de part ment. Soon af ter his ap point ment in 2001, Sec re tary of

De fense Don ald Rumsfeld di rected Pen ta gon lead er ship to con duct a com plete over haul of finan cial man age ment prac tices and pro cesses. The Sec re tary’s vi sion will al low the DOD to be 

man aged in an ef fi cient, busi ness-like man ner in which ac cu rate, re li able, and timely fi nan cial

in for ma tion, af firmed by clean au dit opin ions, is avail able on a rou tine ba sis to sup port informed de ci sion-making at all lev els through out the de part ment. Sec re tary Rumsfeld gave his

Un der Sec re tary of De fense (Comp trol ler) and Chief Fi nan cial Of fi cer, Dr. Dov S. Zakheim,

the au thor ity and re sources to get the job done. The re form ef fort now un der way plans fun da -

men tal and sweep ing changes to busi ness and fi nan cial man age ment prac tices and sup port ing

in fra struc ture. 

A key step is im pos ing dis ci pline. In or der to be gin the trans for ma tion pro cess, DOD had to

in ven tory the cur rent en vi ron ment. To date the de part ment has iden ti fied 1,127 sep a rate fi nancial and fi nan cial feeder sys tems, with the in ter faces be tween these sys tems num ber ing over

3,500. These sys tems ex e cute the busi ness pro cesses of the de part ment. Per son nel, ac qui sition, pay roll, and fi nance sys tems are ex am ples of the types of sys tems and/or their feeder sys -

tems that gen er ate a busi ness and fi nan cial event. To end the pro lif er a tion of these stove-piped

sys tems, the de part ment’s CFO has is sued guid ance on which types of sys tems ini tia tives will

be al lowed to pro ceed. This ac tion will guide the de part ment’s pru dent in vest ment un til the finan cial man age ment en ter prise ar chi tec ture is de vel oped and de ployed.

This en ter prise ar chi tec ture will serve as the blue print to con struct the de part ment’s future

busi ness and fi nan cial man age ment in fra struc ture. The en ter prise ar chi tec ture will in clude

DOD-wide data stan dards and will ar tic u late how to mod ern ize and link both sys tems and

Federal Financial Management Report 17
busi ness pro cesses that span func tional ar eas such as lo gis tics, per son nel, health care, ac counting, fi nance, and oth ers. This is a huge un der tak ing with many steps. Over coming cul tural

changes will re main a chal lenge, but DOD’s lead er ship has shown the com mit ment to see the

ef fort through.

As part of its ef fort to re form its busi ness man age ment prac tices, DOD re cently took the first

ma jor step by award ing a contract to de velop its DOD-wide fi nan cial man age ment en ter prise

ar chi tec ture. The en ter prise ar chi tec ture will pro pose new ways of con duct ing DOD business

ac tiv i ties, of fering so lu tions for mod ern iz ing the de part ment’s fi nan cial prac tices, and in te grating sys tems and busi ness pro cesses across all ap pli ca ble busi ness lines. Within the first year,

the con trac tor will de liver a fi nan cial man age ment en ter prise ar chi tec ture blue print; a tran si tion

plan; and a def i ni tion of data stan dards; and rec om mend a re or ga ni za tion and stream lining of

busi ness pro cesses to en able the de part ment to adopt in dus try best prac tices.

DOD and OMB have re newed ef forts to work to gether on this im por tant ini tia tive. In 2003,

DOD will be gin val i dat ing and test ing its ar chi tec ture. DOD will move ag gres sively to im plement the so lu tion along the timelines de fined in the en ter prise ar chi tec ture im ple men tation 

plan. 

Intragovernmental Trans ac tions

An other ma jor im ped i ment to an opin ion on the gov ern ment-wide fi nan cial state ments is the

gov ern ment’s in abil ity to ac count for bil lions of dol lars of trans ac tions be tween Fed eral Govern ment en ti ties. The gov ern ment lacks clearly ar tic u lated busi ness rules for these trans ac tions

to en sure that they are han dled con sis tently by agen cies. As a re sult, agen cies can not rec on cile

intragovernmental bal ances with their trad ing part ners.

Cur rently, when a Fed eral en tity ob tains goods or ser vices from an other Fed eral en tity, this

pur chase is treated as a fi nan cial trans ac tion rather than an ac qui si tion. En tries are gen er ally

re corded in fi nan cial sys tems upon the trans fer of the funds to the pro vid ing en tity and not

when the re quest is ini ti ated. These intragovernmental trans ac tions are pa per-based, which in -

creases the risk of er rors, omis sions, and dis crep an cies. Since there are no stan dards or com -

mon rules for the busi ness pro cess or the data to be ex changed, each en tity es sen tially has its

own unique pro cess. This lack of stan dard iza tion makes it prac ti cally im pos si ble to ver ify that

both par ties to the busi ness trans ac tion have cap tured it cor rectly. Enor mous re sources are expended each year in fu tile at tempts to iden tify, rec on cile, and elim i nate intragovernmental

trans ac tions.

In March 2001, OMB and JFMIP launched the Intragovernmental Trans ac tion Pro ject to de sign

and pro vide an in te grated ac qui si tion en vi ron ment un der which busi ness trans ac tions be tween

18 Federal Financial Management Report
Fed eral agen cies will be rec og nized and treated as ac qui si tions. Com mer cially avail able tech -

nol ogy will be used to cre ate a gate way and clear ing house to im ple ment E-Government between Fed eral agen cies. Uni form busi ness rules––similar in con cept to the Fed eral Ac qui sition 

Reg u la tion but sig nif i cantly less stringent––and stan dard data el e ments will be de vel oped this

sum mer to sup port this elec tronic intragovernmental ac qui si tion pro cess. 

Bud geting for Re sults

In the Pres i dent’s Man age ment Agenda, Pres i dent Bush stated that: “Gov ern ment should be results-oriented—guided not by pro cess but guided by per for mance. There co mes a time when

ev ery pro gram must be judged ei ther a suc cess or a fail ure.” Judging a pro gram, how ever, requires com plete cost in for ma tion to de ter mine its value. To en sure that public of fi cials and the

Amer i can peo ple are armed with the nec es sary cost in for ma tion to make in formed de ci sions

about pro grams, the FY 2003 Pres i dent’s Bud get pro poses to charge all em ployee costs, includ ing those re lated to re tire ment, to the pro grams them selves. By re cord ing the ac cru ing

costs as em ploy ees earn ben e fits, man ag ers can get a better sense of the true costs of op era -

tions. The pro posal would bring bud get ing for Fed eral em ploy ees in the Civil Ser vice Re tire -

ment Sys tem (and sev eral smaller re tire ment sys tems) in line with bud get ing for em ploy ees in

the Fed eral Em ployees Re tire ment Sys tem and the Mil i tary Re tire ment Sys tem. The pro posal

sim i larly would af fect the Fed eral Em ployees Health Ben e fits Pro gram (FEHBP). It would

have no ef fect on to tal bud get out lays.

The Ad min is tra tion has pro posed the nec es sary stat u tory changes to en sure that ap pro pri a tions

charge em ployee costs to the agency ac counts where the in di vid u als are em ployed. This is

part of the Man a ge rial Flex i bil ity Act, which the Pres i dent sent to Con gress on Oc to ber 1,

2001. Like the changes to the Pres i dent’s Bud get, this pro posal would have no ef fect on the

amount of money we al lo cate for em ployee ben e fits, nor would it lessen any pay ment to re tirees—Fed eral em ploy ees have earned these ben e fits. The Pres i dent’s pro posal sim ply changes

ac count ing for those ben e fits to pro vide a more ac cu rate sense of the full cost of gov ern ment

pro grams.

The ac count ing changes called for in the Man a ge rial Flex i bil ity Act have been sup ported by a

broad co ali tion in the ac count ing com mu nity. As the Joint Fi nan cial Man age ment Im provement Pro gram re cently stated, “A key el e ment of fi nan cial plan ning and eval u a tions is clear

mea sure ment of the full costs of agen cies’ ac tiv i ties dur ing each fis cal year. In clud ing these

costs in data used for bud get ary de ci sion-making would en hance both the plan ning pro cess and

the eval u a tion of the cost of op er a tions. It would also pro vide for en hanced con sis tency and

trans par ency re lat ing to pre sen ta tion of this in for ma tion and greater ac count abil ity for re sults." 

The Amer i can In sti tute of Cer tified Pub lic Ac coun tants has stated sim i lar sup port: “We sup port

pro vid ing for the full costs of agen cies’ ac tiv i ties, in clud ing Fed eral em ployee re tirement costs,

Federal Financial Management Report 19
in in di vid ual agency bud gets. This would en hance the eval u a tion of the true costs of op era tions

within each Fed eral agency, and more closely align the Fed eral gov ern ment’s bud get ary process with its fi nan cial ac count ing and re port ing pro cesses.” The 18,000-member As so ci a tion

of Gov ern ment Ac coun tants (AGA) has in di cated: “AGA sup ports the in te gra tion of ac counting and bud get ing con cepts pro posed by OMB with re spect to Fed eral post-employment ben efits." 

The ac crual-based fi nan cial state ments, which gen er ally pro vide a trans par ent and com prehen -

sive pic ture of gov ern ment op er a tions and ob li ga tions, show that for the first time, fu ture ci vilian em ployee and mil i tary re tire ment ben e fits pay able in the amount of $3.4 tril lion ex ceed the

debt held by the pub lic of $3.3 tril lion. The fol low ing chart shows the growth of Fed eral employee, mil i tary, ci vil ian, and vet eran ben e fits. Fi nan cial state ments rec og nize li a bil i ties/expenses when they are in curred, and the bud get gen er ally re flects costs when paid. As a re sult,

the FY 2001 fi nan cial state ments in cluded a “catch up” li a bil ity that will re sult in sig nif i cant

and ris ing costs for each sub se quent bud get year. As the gov ern ment’s li a bil ity to Fed eral mili tary and ci vil ian em ploy ees and vet er ans grows, greater trans par ency will help im prove the

de ci sion-making pro cess by de pict ing the true costs of gov ern ment pro grams and op er a tions.

20 Federal Financial Management Report

1995 1996 1997 1998 1999 2000 2001

1

1.5

2

2.5

3

3.5

4

Federal Employee

(Military and Civilian) and

Veteran Benefits Payable

Debt Held by the Public

In trillions of dollars

Debt Held by the Public Compared to Federal Employee

and Veteran Benefits Payable
Committees of the Chief Fi nan cial Of fi cers Coun cil 

To help agen cies meet the goals of the Pres i dent’s Man age ment Agenda, the CFO Coun cil recently es tab lished a new com mit tee struc ture to mir ror the five gov ern ment-wide ini tia tives. 

The com mit tees are chaired by Coun cil mem bers and in clude agency CFOs and Dep uty CFOs,

as well as rep re sen ta tives from OMB, the De part ment of the Trea sury, and the Joint Fi nan cial

Man age ment Im prove ment Pro gram. The Er ro ne ous Pay ments work ing group is co-chaired by

an In spec tor Gen eral. The com mit tees in clude Best Prac tices, Bud get and Per for mance In te gration, Er ro ne ous Pay ments, Fi nan cial State ment Ac cel er a tion, Fi nan cial Sys tems and

E-Government, and Hu man Cap i tal.

Best Prac tices Com mit tee

Co-Chair: Dr. Dov S. Zakheim, Un der Sec re tary of De fense (Comp trol ler)/CFO, De part ment

of De fense

Co-Chair: Ed Kingman, As sis tant Sec re tary for Man age ment/CFO, De part ment of the Treasury

This com mit tee en hances the CFO Coun cil’s abil ity to re solve com mon fi nan cial man age ment

prob lems across Fed eral agen cies through ex po sure to new ideas from “best prac tice” or ga niza -

tions, and the on go ing dis cus sion of al ter na tive per spec tives on achiev ing world class ex cellence by both gov ern ment and in dus try lead ers. The com mit tee is con sid er ing part ner ship arrange ments with other or ga ni za tions in or der to le ver age its re sources. Three ma jor ini tia tives

are planned over the next year, which will serve as the foun da tion for best prac tice ef forts over 

the next five years. These in clude:

• Sur vey of In ven tory––By June 2002, all CFO Act agen cies will be asked to re spond to

a sur vey to iden tify and pri or i tize at least five spe cific ar eas of fo cus (i.e., en ter prise finan cial man age ment sys tems, cost ac count ing, travel card pro grams, per for mance manage ment met rics, and/or im proved fi nan cial re port ing) re lated to im prove ments made or

planned for by those or ga ni za tions as they pro mote the Pres i dent’s Man age ment

Agenda. 

• Tar geted Prac tices––By Sep tem ber 2002, an anal y sis/study will be con ducted on one or

more of the pri or i ties iden ti fied in the sur vey and/or through dis cus sions with the commit tee’s pro posed part ner ship ar range ments. The com mit tee en vi sions that the pri or i ties 

Federal Financial Management Report 21
iden ti fied will tie to the Ex ec u tive Branch Man age ment Score card. The com mit tee will

share its find ings with the Coun cil through re ports, fo rums, and other events to as sist

agen cies in “get ting to green.”

• Speakers/Rec og ni tion––The com mit tee will ar range for speak ers at each CFO Coun cil

meet ing to dis cuss best prac tices. At the April 2002 meet ing, Coun cil mem bers received a thor ough brief ing on the De part ment of De fense’s fi nan cial man age ment en terprise ar chi tec ture pro gram. As the com mit tee de vel ops an in ven tory of im provements/best prac tices, it will cre ate a mech a nism for rec og niz ing those agen cies that

have de vel oped world class or ga ni za tions which ex em plify the com mit tee’s vi sion.

The syn ergy of these best prac tice ini tia tives for FY 2002 will be gin to build a foun da tion of

ex cel lence for Fed eral fi nan cial man age ment and tie di rectly to the Pres i dent’s Man age ment

Agenda. Clearly, best prac tices linked to im prov ing fi nan cial sys tems, es pe cially in the cost

ac count ing area, serve as the back drop for “get ting to and be yond green” in im prov ing fi nancial re port ing and per for mance, in te gra tion of bud get and per for mance data, and com pet i tive

sour cing cost com par i sons. Over all, best prac tices in fi nan cial man age ment should lead to a

value prop o si tion of both a con tin u ous low er ing of the av er age cost of Fed eral fi nan cial manage ment, while de liv er ing higher qual ity and more timely per for mance man age ment in for mation to ef fec tively man age large Fed eral pro grams.

Over the next five years, the com mit tee will build upon this foun da tion to of fer a “com mu nity

of best prac tices” that sys tem at i cally iden ti fies, cat a logs, and pro motes best prac tices across the

Fed eral fi nan cial man age ment spec trum, thereby rais ing the stan dards in those spe cific finan -

cial ar eas with the great est po ten tial for im prove ment. Each pri or ity iden ti fied through the survey will be ad dressed by the end of 2003. Fu ture ac tiv i ties may in clude: tar geted best prac -

tices ini tia tives across mul ti ple agen cies, an nual best prac tices con fer ences, and reg u lar

mea sure ment of the cost sav ings.

Bud get and Per for mance In te gra tion Com mit tee

Chair: Donna McLean, Chief Fi nan cial Of fi cer, De part ment of Trans por ta tion

This com mit tee will iden tify rec om men da tions that will lead to im proved link age be tween bud -

get ary re sources and pro gram per for mance. The goal is to pro vide the Ex ec u tive Branch, the

Con gress, and the pub lic with use ful, com plete, con sis tent, re li able, ac cu rate, and timely in forma tion that re lates bud get ary re sources with per for mance out comes. This is es sen tial for:

• Ef fec tive over sight of gov ern ment pro grams;

• Ef fec tive and ef fi cient man age ment of gov ern ment pro grams;

22 Federal Financial Management Report
• In formed de ci sion-making about bud get pri or i ties; and

• Pub lic un der stand ing of the per for mance of the gov ern ment.

In com plet ing its ob jec tives, the com mit tee will:

• Iden tify and eval u ate bud get ing, ac count ing, pro gram man age ment, per for mance measure ment, and in di vid ual and or ga ni za tional ac count abil ity prin ci ples, stan dards, and related re quire ments needed to im prove the link age and in te gra tion of bud get ary re sources

to per for mance out comes. 

• De ter mine de fi cien cies and rec om mend so lu tions to ex ist ing bud get, fi nan cial, and perfor mance re port ing struc tures and pro cesses. 

• Eval u ate pro posed guid ance by OMB, the Of fice of Per son nel Man age ment, the Gen eral

Ac count ing Of fice, the De part ment of the Trea sury, the Gen eral Ser vices Ad min is tration, and other or ga ni za tions for im pact on the bud get ary, fi nan cial, and per for mance

pro cesses of Fed eral de part ments and agen cies.

• De ter mine and pro vide sup port for meth ods that fi nan cial man ag ers could use to promote co op er a tion among their or ga ni za tions for im prov ing the in te gra tion of bud get, fi -

nance, and per for mance data.

• In ter act with the Pres i dent’s Man age ment Coun cil, Pres i dent’s Coun cil on In teg rity and

Ef fi ciency, Chief In for ma tion Of fi cers Coun cil, and sim i lar or ga ni za tions and their re -

spec tive work groups on mat ters in volv ing com mit tee re spon si bil i ties.

Bud get guid ance in OMB Cir cu lar A–11, Pre paring and Sub mitting Bud get Es ti mates, will

pro vide a clear (but not the only) path to be gin mov ing agen cies to de velop and pres ent bud get 

in an in te grated fash ion.

Dur ing the next five years, the com mit tee will sup port and en hance the pro cess of ef fec tive

bud get and per for mance in te gra tion by an nu ally rec og niz ing agen cies that have ap plied in no vative prac tices to the gen eral task of in te gra tion. The com mit tee will fos ter im proved com mu nica tion with out side ex per tise (con sul tant, uni ver sity, and other) re gard ing the con tin u ous process of bud get and per for mance in te gra tion. In ad di tion, it will iden tify and de fine next

gen er a tion pro cesses and prac tices for im prov ing bud get and per for mance in te gra tion by maintain ing on go ing li ai son with the CFO Act agen cies.

Er ro ne ous Pay ments Com mit tee

Chair: Mark Car ney, Dep uty Chief Fi nan cial Of fi cer, De part ment of Ed u ca tion

Federal Financial Management Report 23
Agencies en coun ter sub stan tial dif fi cul ties in ar riv ing at the er ro ne ous pay ment es ti mates required un der the Pres i dent’s Man age ment Agenda. The pro grams for which the Ad min is tra tion

is re quir ing er ro ne ous pay ment es ti mates are of ten sad dled with oner ous and com plex qual i fica tions that are used to iden tify ben e fi cia ries en ti tled to pay ments. Many of these pro grams

also rely on states, lo cal i ties, or other third par ties to de liver the ben e fits au tho rized by law. 

These com pli ca tions––bar ri ers to es ti mat ing er ro ne ous pay ment rates––are the very dif fi cul ties

that put these pro grams at risk of high er ro ne ous pay ment rates. The CFO Coun cil formed the

Er ro ne ous Pay ments Com mit tee to ad dress these prob lems.

Prior to the com mit tee’s ini tial meet ing on March 8, 2002, the CFO Coun cil de cided that a

joint work ing group be tween the CFO Coun cil and the Pres i dent’s Coun cil on In teg rity and Effi ciency (PCIE)––the coun cil of Fed eral agency In spec tors Gen eral—should be es tab lished to

do the pri mary work of this com mit tee. The In spec tor Gen eral com mu nity has a great deal of

ex pe ri ence in the area of iden ti fy ing po ten tial er ro ne ous pay ments and its in put to the work of

the Er ro ne ous Pay ments Com mit tee will be in valu able.

The work group con venes to dis cuss and de velop best prac tices and other meth ods to re duce or

elim i nate, where pos si ble, im proper and er ro ne ous pay ments made by or on be half of Fed eral

Gov ern ment agen cies. These meth ods may in clude, but are not lim ited to: com plet ing risk assess ments to de ter mine the na ture and ex tent of the is sue and cat e go riz ing the risk as low, medium, or high; ex plor ing data shar ing, data min ing, and neu ral net work ing tech niques; and

high light ing suc cess ful con tract au dit ing and pre pay ment in ves ti ga tions. Mem ber ship is restricted to Fed eral em ploy ees, al though part ner ships with other lev els of gov ern ment and the

pri vate sec tor are en cour aged.

The work group’s mis sion is to as sist in fos ter ing changes in Fed eral Gov ern ment pol i cies and

prac tices that re duce the risks as so ci ated with the ex pen di ture of pro gram and ad min is tra tive

funds. The work group will pro vide the CFO Coun cil/PCIE lead er ship with strat e gies, tac tics,

and in for ma tion to en able it to pro mote the ef fi cient man age ment and dis burse ment of gov ernment re sources and as sets. Pri mary tasks are to:

• De velop strat e gies to re duce or elim i nate, where pos si ble, im proper and er ro ne ous payments. This in cludes under pay ments as well as overpayments.

• Ini ti ate and share best prac tice meth ods that min i mize risk and re duce and elim i nate,

where pos si ble, im proper and er ro ne ous pay ments.

• Es tab lish in di ca tors that iden tify the na ture and ex tent of the prob lem and can aid Federal agen cies in mea sur ing their prog ress in re duc ing and pre vent ing im proper and er rone ous pay ments.

24 Federal Financial Management Report
• Mon i tor and track suc cess through out agen cies.

• Ex plore al ter na tive fund ing mech a nisms such as the use of pro gram matic sav ings to

fund ad min is tra tive costs.

The work group plans to pro vide the Fed eral com mu nity with the fol low ing prod ucts:

• A re port that de fines the work group’s po si tion on mit i gat ing and man ag ing pay ment

risks. This re port will build on work al ready com pleted by the Gen eral Ac count ing Office, OMB, the Of fices of In spec tor Gen eral, and other or ga ni za tions in this area.

• A cri tique on the ef fec tive ness of the dif fer ing pro cesses used to de ter mine er ro ne ous

pay ment rates, in clud ing ac tual and tar get rates for ben e fit and as sis tance pro grams over

$2 bil lion (re quired with FY 2003 agency bud get sub mis sions).

• A set of in di ca tors that rep re sent the na ture and ex tent of the prob lem of im proper and

er ro ne ous pay ments in Fed eral agen cies, and es tab lish Fed eral benchmarks.

• Based on com pleted risk as sess ments, guid ance for agen cies to en sure suf fi cient oversight and mon i tor ing, ad e quate el i gi bil ity con trols, and au to mated sys tems of agen cies

ex pe ri enc ing im proper and er ro ne ous pay ments.

The work group will be suc cess ful when the fol low ing ob jec tives and out comes are re al ized:

• Agencies com plete risk as sess ments, con trol ac tiv i ties, and other ap pli ca ble tests to

iden tify and pre vent im proper and er ro ne ous pay ments.

• Based on the re sults of the risk as sess ments and the ex tent of im proper and er ro ne ous

pay ments iden ti fied, agen cies will de velop cor rec tive ac tion plans to help re duce and

pre vent im proper and er ro ne ous pay ments, in clud ing, as ap pli ca ble, the col lec tion of

im proper pay ments iden ti fied.

• Agencies closely mon i tor and re vise cor rec tive ac tion plans as nec es sary to en sure the

ap pro pri ate ness and ef fec tive ness of ac tions taken.

• Agencies es tab lish and in sti tu tion al ize com mu ni ca tion and in for ma tion path ways

thereby en hanc ing data shar ing.

• Agencies mon i tor per for mance against es tab lished per for mance goals and in di ca tors,

and make ad just ments where needed.

Fi nan cial State ment Ac cel er a tion Com mit tee

Chair: Don Hammond, Fis cal As sis tant Sec re tary, De part ment of the Trea sury

Federal Financial Management Report 25
A key step to im prov ing the fi nan cial per for mance of agen cies is to im prove the qual ity and

use ful ness of the fi nan cial in for ma tion pro duced by the agen cies. To ward this end, the Joint

Fi nan cial Man age ment Im prove ment Pro gram Prin ci pals de cided and OMB sub se quently directed that the timeframes for is su ing the agency and gov ern ment-wide fi nan cial state ments

should be ac cel er ated so that the is su ance dates for the FY 2004 re port ing cy cle would be No -

vem ber 15 for agency state ments and De cem ber 15 for the gov ern ment-wide state ments.

The pur pose be hind ac cel er at ing the is su ance of these state ments is two fold: (1) to shift the

agency fo cus from tak ing ex traor di nary mea sures to pro duce an nual au dited fi nan cial state -

ments to main tain ing ac cu rate fi nan cial data through out the year, and (2) to make the fi nan cial

state ments avail able early enough af ter year-end so as to be use ful in the com ing year’s bud get 

de vel op ment pro cess. In the pri vate sec tor, the abil ity to pro duce timely fi nan cial in for ma tion

is not a hall mark of ex cel lence; it is a base line that is sim ply ex pected. The re quire ment to

pro duce quarterly fi nan cial in for ma tion will also force agen cies to reengineer their busi ness

and fi nan cial man age ment pro cesses to meet the ac cel er ated dead lines while pro vid ing more

fre quent and timely in for ma tion.

Achieving the ob jec tives pre scribed by OMB will ne ces si tate fun da men tal changes in the way

that many agen cies pro cess their fi nan cial in for ma tion and pre pare their re ports. It will re quire

co op er a tion be tween pro gram of fices and the fi nan cial man age ment staffs to iden tify infor mation re quire ments and then align them with the sys tem capabilities. The ef fort can only succeed if OMB, the De part ment of the Trea sury, and other cen tral agen cies are will ing to

reengineer busi ness pro cesses and make changes. Suc cess will re quire a re la tion ship based on

com mon pur pose and un der stand ing of the im por tance of this quest among all par ties.

The CFO Coun cil cre ated this com mit tee to as sist the agen cies in reach ing the ac cel er ated report ing goals. The com mit tee’s charge is to iden tify and share agency best prac tices for state -

ment prep a ra tion, iden tify bar ri ers or “road blocks,” and ex plore the ex panded use of techniques such as es ti ma tion. To carry out this re spon si bil ity, the com mit tee will pro vide its

find ings and in for ma tion to the CFO Coun cil in phases so that in for ma tion could be avail able

to the agen cies as soon as pos si ble. The com mit tee’s work is struc tured but in for mal. The

out put will not be pol ished re ports but in stead sub ject-related in for ma tion that can be eas ily digested by the var i ous agen cies. The com mit tee will also es tab lish an ef fec tive work ing re lation ship with the au dit sub com mit tee of the PCIE to fa cil i tate com mu ni ca tion in this

fast-moving area.

The com mit tee’s first area of em pha sis is to iden tify prac tices al ready in use by some agencies

that would be valu able to share across the coun cil mem ber ship. A com po nent of this is to review the timelines used by the agen cies for pro duc ing their fi nan cial state ments to find unique

steps that if more broadly ap plied, could as sist other agen cies. In ad di tion, the com mit tee will

26 Federal Financial Management Report
iden tify ac cel er ated dates in use by agen cies that can be used by other agen cies as they seek to

meet these in terim dates. A few agen cies al ready meet or come very close to the new is su ance

dates. Two of these en ti ties, the United States Postal Ser vice and the So cial Se cu rity Ad min istra tion, have con ducted open houses to dis cuss the var i ous mea sures that they em ploy to al low

them to pro duce their re ports so quickly. These fo rums were open to the CFO com mu nity and

pro vided an ex cel lent op por tu nity to dis cuss chal lenges that ex ist and how they can be over -

come.

Next on the com mit tee’s agenda is to iden tify the cur rent ex ter nal bar ri ers that re quire ac tion

or change to make the tran si tion to ac cel er ated fi nan cial re port ing. These ex ter nal bar ri ers

come from sev eral sources and many of them will need to be ad dressed soon so that they can

be re solved in time to meet the FY 2004 sched ules. The types of items that fall into this cat egory are re port ing re quire ments or for mats, data avail abil ity, and dif fer ent agency schedules. 

For ex am ple, cer tain key as sump tions pro vided by OMB are es sen tial for the prep a ra tion of

the fi nan cial state ments. The dates that these as sump tions be come avail able to the agen cies

must be changed in or der to sup port the new is su ance dates. Ad di tionally, the pro cess ing of

agency fi nan cial in for ma tion by cen tral agen cies (i.e., De part ment of the Trea sury) must al low

for the agency to have ac cess to the pro cessed trans ac tions in time for re port prep a ra tion. The

com mit tee is cur rently com pil ing a list of these ex ter nal bar ri ers for dis tri bu tion to the CFO

Coun cil.

Many agen cies will need to im ple ment new prep a ra tion tech niques or ex pand the use of them

in or der to meet these timeframes. The use of es ti ma tion tech niques for cer tain clos ing period

bal ances will be come very im por tant as ac tual fig ures may not ex ist at the time the state ments

are pre pared. The use of es ti mates needs to be con sis tent and well doc u mented and will undoubt edly re quire more than one year in or der for agen cies to get this right. There fore, it is

im por tant for them to start now on iden ti fy ing those ar eas where es ti mates will be nec es sary

and be gin the ini tial work that will ul ti mately re quire close co or di na tion with each au di tor. 

Ad di tionally, agen cies will need to re view their pro cesses for key ac cru als. In par tic u lar, this

is an area where the pro duc tion of quar terly state ments will be valu able. The com mit tee intends to aid the agen cies in these ar eas by col lect ing and dis sem i nat ing in for ma tion on both

gov ern ment and cor po rate prac tices and ar rang ing fo rums on se lected top ics to pro vide for effec tive shar ing of the in for ma tion.

Ob vi ously, the tim ing of the is su ance of au dited fi nan cial state ments is also de pend ent on the

com ple tion of the au dit. This area will also re quire at ten tion and pro vides the op por tu nity for

cre ative co op er a tion be tween the agency pre par ers and the au di tors. Like the other ar eas, this

one must be ad dressed as early as pos si ble to al low for the re vi sion of sched ules, the bal anc ing

of work load, the amend ment of con tracts, and the changes to busi ness prac tices. The com mitFederal Financial Management Report 27
tee hopes to fa cil i tate the ex change of ideas be tween pre par ers and au di tors and pro mote more

uni form and ef fec tive com mu ni ca tions.

Fi nan cial Sys tems and E-Government Com mit tee

Chair: Don McCrory, Dep uty Chief Fi nan cial Of fi cer, Na tional Sci ence Foun da tion

The Fi nan cial Sys tems and E-Government Com mit tee’s ob jec tive is to fa cil i tate im prove ments

of Fed eral fi nan cial sys tems to en sure that such sys tems pro vide use ful, com plete, con sis tent,

re li able, ac cu rate, and timely fi nan cial in for ma tion about the op er a tions and con di tion of the

Fed eral Gov ern ment in sup port of the Pres i dent’s Man age ment Agenda. To en able Fed eral

agen cies to “get to green” in fi nan cial per for mance, the com mit tee is fo cus ing on the follow ing

pro jects and ini tia tives:

• Fed eral Fi nan cial Man age ment Im prove ment Act of 1996 (FFMIA) Com pli ance––Many 

Fed eral de part ments con tinue to strug gle with the broad def i ni tions of achiev ing compli ance with FFMIA and, there fore, lack the abil ity to fo cus on the ac tual re sults produced by their fi nan cial sys tems. Con se quently, non com pli ance with FFMIA has been

an im ped i ment to “get ting to “green.” This com mit tee will re view the com pli ance recom men da tions of FFMIA and re-focus them on high-level ca pa bil i ties and re sults of

sys tems that pro vide use ful and timely re port ing of fi nan cial in for ma tion to se nior manage ment for their use in de ci sion-making. By Au gust 2002, the com mit tee plans to recom mend to OMB re vised FFMIA im ple men ta tion guid ance to fo cus agen cies on systems and re sults of timely, ac cu rate, and use ful data to im prove man age ment.

• Fi nan cial Sys tem Pol icy Up date––OMB Cir cu lar A–127, Fi nan cial Man age ment Systems, pre scribes the pol i cies and stan dards that Ex ec u tive de part ments and agen cies

must fol low in de vel op ing, op er at ing, eval u at ing, and re port ing on fi nan cial man agement sys tems. OMB will re vise these re quire ments and in cor po rate them into a sin gle

fi nan cial man age ment cir cu lar by Sep tem ber 2002. The new guid ance will cover (1)

pro cure ment of fi nan cial man age ment sys tems and ser vices; (2) clar i fi ca tion of fi nan cial 

man age ment sys tem re quire ments; and (3) achiev ing ac cel er ated fi nan cial re port ing.

• Se cu rity of Fi nan cial Man age ment Sys tems––Vir tu ally ev ery agency now con ducts

busi ness us ing var i ous as pects of the elec tronic en vi ron ment, such as the Internet,

Intranets, and lo cal and wide-area net works. The elec tronic en vi ron ment has changed

the way the pub lic, in dus try, and state and lo cal gov ern ments in ter act with the Fed eral

Gov ern ment. To meet pub lic and pri vate de mands, agen cies are of fer ing more on line

ser vices as well as elec tronic forms and trans ac tion ca pa bil i ties. To day’s fi nan cial man -

age ment en vi ron ment de pends on this tech nol ogy, which pres ents new se cu rity challenges. The com mit tee will work with the sys tems se cu rity com mit tees of the other inter agency man age ment coun cils to en sure proper se cu rity is in te gral to all fi nan cial

28 Federal Financial Management Report
man age ment sys tems, as well as those non-financial sys tems that im pact fi nan cial data.

Such se cu rity is es sen tial to “get ting to green” in both the Im proved Fi nan cial Per for mance

and Ex panded E-Government ini tia tives. Plans in clude best prac tices work shops and ac tion

items to ex am ine se cu rity and pri vacy is sues with the Chief In for ma tion Of fi cers Coun cil,

the Pro cure ment Ex ec u tive Coun cil, and the pri vate sec tor com mu nity on fi nan cial sys tems

se cu rity.

• Elec tronic Gov ern ment––The com mit tee is ac tively par tic i pat ing in the Ex panded

E-Government ini tia tive that in cludes par tic i pa tion on the E-Government Man age ment

Coun cil (which in cludes the CFO, the Chief In for ma tion Of fi cers, the Pro cure ment Ex ec utive, and the Hu man Re sources Coun cils). The com mit tee will be in volved with the 24

cross cut ting E-Government ini tia tives. Spe cific ini tia tives in clude E-Grants, E-Payroll, In tegrated Hu man Re sources, E-Travel, In te grated Ac qui si tion En vi ron ment, Fed eral En ter prise

Ar chi tec ture, and Fed eral As set Sales. As ex am ples, the E-Grants ini tia tive, led by the Depart ment of Health and Hu man Ser vices with 11 part ner agen cies, will cre ate a sin gle grants

‘‘por tal’’ to in crease aware ness of grant op por tu ni ties, sim plify the ap pli ca tion pro cess, and

re duce the bur den for grant op por tu ni ties, sim plify the ap pli ca tion pro cess, and re duce the

bur den for grant ad min is tra tion. It is es ti mated that this ef fort will save $1 bil lion in Fed eral

funds cur rently de voted to the ad min is tra tion of grants. The E-Payroll ini tia tive, led by the

Of fice of Per son nel Man age ment, seeks to lessen the ad min is tra tive bur den on agen cies by

better de fin ing, stan dard iz ing, and reengineering payroll pro cess ing. The Ad min is tra tion

will con sol i date the nu mer ous Ex ec u tive Branch ci vil ian pay roll sys tems now in place into

three.

Hu man Cap i tal Com mit tee

Chair: Angela Antonelli, Chief Fi nan cial Of fi cer, De part ment of Housing and Ur ban De vel opment

The CFO Act de fined the need for a new class of fi nan cial man ag ers within the Fed eral Gov ernment. Agency CFOs rec og nize their or ga ni za tional suc cess de pends upon a highly tal ented and

multi-disciplinary workforce. In deed, our abil ity to de liver on any of our stat u to rily-defined goals

de pends on the qual i fi ca tions, pro duc tiv ity, and mo ti va tion of our workforce. The CFO Coun cil

leads ef forts to de velop such a di ver si fied corps of fi nan cial man age ment pro fes sion als for the Federal Gov ern ment through the Hu man Cap i tal Com mit tee. 

The Hu man Cap i tal Com mit tee as sists CFOs in per form ing their con gres sio nally-mandated du ties

by fa cil i tat ing the im prove ment of gov ern ment-wide fi nan cial per son nel pol i cies and pro grams.

The pri mary ob jec tive of the com mit tee is to de velop and main tain a high qual ity Fed eral fi nan cial

man age ment workforce to sup port the suc cess ful im ple men ta tion of agency mis sions.

Federal Financial Management Report 29
The Hu man Cap i tal Com mit tee facilitates im prove ment of gov ern ment-wide fi nan cial

per son nel pol i cies and pro grams to de velop and main tain a high qual ity Fed eral fi nan cial

man age ment workforce by:

• Pro moting ef fec tive fi nan cial man age ment ed u ca tion and train ing within the Federal Gov ern ment; and

• As sisting agen cies in re cruit ing and re tain ing highly qual i fied fi nan cial man agement per son nel.

The Hu man Cap i tal Com mit tee uses many tools to achieve these two pri mary ob jec tives. 

Plans and ac tiv i ties are al ready in prog ress to im ple ment pro grams, which will fa cil i tate

sub stan tial im prove ments in Fed eral fi nan cial per son nel man age ment. The com mit tee

will:

• Serve as a fo rum for CFOs to iden tify, dis cuss and col lec tively ad dress fi nan cial

per son nel chal lenges.

• Iden tify and pub li cize in no va tive fi nan cial man age ment train ing pro grams currently con ducted by Fed eral agen cies.

• De velop a se nior fi nan cial ex ec u tive pro gram to iden tify and train the next gen er ation of se nior fi nan cial man ag ers.

• Iden tify and pub li cize fi nan cial per son nel best prac tices among Fed eral agen cies.

• Rec om mend im prove ments to gov ern ment-wide fi nan cial per son nel pol i cies and

pro grams, par tic u larly those re lated to re cruit ment, re ten tion, train ing, and pro motion.

The Hu man Cap i tal Com mit tee will not limit it self to only short-term goals. Over the

next five years, the com mit tee will ad vance the Pres i dent’s ini tia tives by: 

• Iden tifying bar ri ers to hir ing, re tain ing, and train ing staff in Fed eral fi nan cial po sitions and for mu lat ing im proved fi nan cial man age ment per son nel pol i cies to overcome these bar ri ers.

• Es tab lishing a pro gram to help agen cies develop fi nan cial man age ment hu man

cap i tal plans. This pro gram will serve as a re source CFOs can turn to for ex amples of best prac tices, train ing re sources avail able from gov ern ment or pri vate sector sources, re cruit ing tools and les sons learned. 

• Taking fi nan cial train ing pro grams to new lev els of ex cel lence, which will max imize their po ten tial to de velop fu ture se nior Fed eral fi nan cial ex ec u tives. Fol lowing the ini tial fo cus on de vel op ing a se nior fi nan cial ex ec u tive pro gram, the Hu30 Federal Financial Management Report
man Cap i tal Com mit tee will fo cus on en try-level ori en ta tion pro grams, ju nior staff

train ing pro grams, and mid-level fi nan cial man ager de vel op ment pro grams.

Successful im ple men ta tion of these ini tia tives will lead to a Fed eral fi nan cial man age ment

workforce that sets the stan dard for ex cel lence and com petes suc cess fully with the pri vate sec -

tor for the best avail able fi nan cial tal ent.

Federal Financial Management Report 31
Ap pen dix A: Sum mary of FY 2001 Fi nan cial

State ment Re sults by Agencies and Se lected

Com po nents

The 24 CFO Act agen cies are re quired un der the CFO Act to pre pare au dited fi nan cial statements un der the CFO Act; OMB des ig nates the in di vid ual agency com po nents that must prepare au dited fi nan cial state ments.

Fiscal Year 2001 Financial Statements

Agency Type of

Opinion 

CFO Act Agencies:

De part ment of Ag ri cul ture (USDA) ........................... Disclaimer

De part ment of Com merce ................................. Unqualified

De part ment of De fense (DOD) .............................. Disclaimer

De part ment of Ed u ca tion .................................. Qualified

De part ment of En ergy .................................... Unqualified

De part ment of Health and Hu man Ser vices (HHS)................. Unqualified

De part ment of Housing and Ur ban De vel op ment (HUD)............. Un qual i fied

De part ment of the In te rior ................................. Un qual i fied

De part ment of La bor..................................... Un qual i fied

De part ment of Jus tice .................................... Unqualified

De part ment of State ..................................... Unqualified

De part ment of Trans por ta tion (DOT) .......................... Un qual i fied

De part ment of the Trea sury ................................ Un qual i fied

De part ment of Vet erans Af fairs (VA) .......................... Un qual i fied

Agency for In ter na tional De vel op ment (AID) .................... Disclaimer

En vi ron men tal Pro tec tion Agency (EPA) ....................... Unqualified

Fed eral Emer gency Man age ment Agency (FEMA)................. Qualified

Gen eral Ser vices Ad min is tra tion (GSA) ........................ Unqualified

Na tional Aero nau tics and Space Ad min is tra tion (NASA) ............ Disclaimer

Federal Financial Management Report 33
Fiscal Year 2001 Financial Statements

Agency Type of

Opinion 

CFO Act Agencies:

Na tional Sci ence Foun da tion (NSF) ....................... Unqualified

Nu clear Reg u la tory Com mis sion (NRC) .................... Unqualified

Of fice of Per son nel Man age ment (OPM) .................... Unqualified

Small Busi ness Ad min is tra tion (SBA) ...................... Unqualified

So cial Se cu rity Ad min is tra tion (SSA) ...................... Unqualified

Agency Com po nents:

Food and Nu tri tion Ser vice (USDA) ....................... N/A*

For est Ser vice (USDA) ................................ Disclaimer

Ru ral De vel op ment Mis sion Area (USDA)................... Unqualified

De part ment of Army Gen eral Funds (DOD).................. N/A*

De part ment of Navy Gen eral Funds (DOD) .................. Disclaimer

De part ment of Air Force Gen eral Funds (DOD) ............... Disclaimer

Mil i tary Re tire ment Trust Fund (DOD) ..................... Unqualified

U.S. Army Corp of En gi neers Civil Works Pro gram (DOD) ....... Disclaimer

De part ment of Army Working Cap i tal Fund (DOD) ............ N/A*

De part ment of Navy Working Cap i tal Fund (DOD) ............. Disclaimer

De part ment of Air Force Working Cap i tal Fund (DOD) .......... Disclaimer

Cen ters for Medicare and Medicaid Ser vices (HHS) ............ Unqualified

Fed eral Avi a tion Ad min is tra tion (DOT)..................... Unqualified

High way Trust Fund (DOT)............................. Unqualified

Bu reau of Al co hol, To bacco and Fire arms (Trea sury) ........... N/A*

In ter nal Rev e nue Ser vice (Trea sury) ....................... Unqualified

United States Cus toms Ser vice (Trea sury) ................... N/A*

Civil Ser vice Re tire ment and Dis abil ity Fund (OPM) ........... Unqualified

Fed eral Em ployees Health Ben e fits Pro gram (OPM) ............ Unqualified

Fed eral Em ployees Life In sur ance Pro gram (OPM) ............. Unqualified

* Com po nent re ceived OMB waiver from au dit for FY 2001.

34 Federal Financial Management Report
Ap pen dix B: Ma te rial Weak nesses Re ported by

Au di tors and Fed eral Man agers= Fi nan cial In teg rity

Act Ta bles

OMB au dit guid ance re quires au di tors to dis close ma te rial weak nesses in in ter nal con trol over

fi nan cial re port ing. The Fed eral Man agers’ Fi nan cial In teg rity Act (FMFIA) of 1982 and

OMB im ple ment ing guid ance re quire the head of each ex ec u tive agency to re port an nu ally on

whether there is rea son able as sur ance that the agency’s con trols are achiev ing their in tended

ob jec tives and whether the agency’s fi nan cial man age ment sys tems con form to gov ernment-wide re quire ments. Agency heads are re quired to iden tify ma te rial weak nesses re lated to

agency pro grams and op er a tions (pur su ant to Sec tion 2 of FMFIA) and nonconformances with

gov ern ment-wide fi nan cial sys tems re quire ments (pur su ant to Sec tion 4 of FMFIA). Re porting 

of ma te rial weak nesses un der FMFIA is not lim ited to weak nesses over fi nan cial re port ing.

The fol low ing ta bles in clude the num ber of ma te rial weak nesses iden ti fied by au di tors, ma terial weak nesses re ported by Agency heads pur su ant to Sec tion 2 of the FMFIA, and fi nan cial

sys tem nonconformances re ported by Agency Heads pur su ant to Sec tion 4 of the FMFIA.

Federal Financial Management Report 35
Fis cal Year 2001: Au di tor-Reported Ma te rial Weak nesses

Be gin ning New Re solved End ing

Ag ri cul ture 7 1 1 7

Com merce 3 0 2 1

De fense 15 0 0 15

Ed u ca tion 3 0 2 1

En ergy 0 0 0 0

HHS 2 0 0 2

HUD 4 1 0 5

In te rior 11 0 5 6

Jus tice 3 0 0 3

La bor 0 0 0 0

State 1 0 0 1

DOT 1 1 0 2

Trea sury 2 0 0 2

VA 2 4 0 6

AID 3 0 0 3

EPA 0 0 0 0

FEMA 2 4 0 6

GSA 0 0 0 0

NASA 0 1 0 1

NSF 0 0 0 0

NRC 2 1 1 2

OPM 0 0 0 0

SBA 0 1 0 1

SSA 0 0 0 0

TOTALS 61 14 11 64

36 Federal Financial Management Report
Federal Financial Management Report 37

Fiscal Year 2001: Section 2 Reporting in Agency FMFIA

(on Accountability) Reports

Ad e quate and Ef fec tive

Man age ment Con trols*

Num ber of Ma te rial Weak nesses

Agency Yes

Yes, with

Ma te rial

Weak nesses

Be gin ning New Re solved End ing

Ag ri cul ture X 29 9 10 28

Com merce X 0 2 0 2

De fense X 103 50 38 115

Ed u ca tion X 4 1 0 5

En ergy X 12 2 1 13

HHS X 2 0 0 2

HUD X 1 0 0 1

In te rior X 19 1 3 17

Jus tice X 10 0 2 8

La bor X 3 0 3 0

State X 3 0 0 3

DOT X 0 1 0 1

Trea sury X 21 2 3 20

VA X 4 1 2 3

AID X 4 0 0 4

EPA X 5 0 1 4

FEMA X 0 0 0 0

GSA X 5 0 2 3

NASA X 0 1 0 1

NSF X 0 0 0 0

NRC X 0 0 0 0

OPM X 4 0 4 0

SBA X 1 0 1 0

SSA X 1 0 0 1

TOTAL 6 18 231 70 70 231

* Agency head has pro vided over all as sur ance that the agency has ad e quate and ef fec tive

man age ment con trols, ex cept for the ma te rial weak nesses iden ti fied.
Fis cal Year 2001: Section 4 Re porting in Agency FMFIA

(or Ac count abil ity) Re ports

Sys tems Con form to

Re quire ments Num ber of Nonconformances

Agency Yes

Yes, with

Nonconformances*No Be gin ning New Re solved End ing

Ag ri cul ture X 4 0 0 4

Com merce X 1 0 0 1

De fense X 153 0 0 153

Ed u ca tion X 2 0 0 2

En ergy X 0 0 0 0

HHS X 1 0 0 1

HUD X 2 0 0 2

In te rior X 0 1 0 1

Jus tice X 4 2 2 4

La bor X 1 0 1 0

State X 1 0 0 1

DOT X 1 0 0 1

Trea sury X 11 2 4 9

VA X 5 0 2 3

AID X 0 0 0 0

EPA X 0 0 0 0

FEMA X 1 1 0 2

GSA X 2 0 0 2

NASA X 0 0 0 0

NSF X 0 0 0 0

NRC X 0 0 0 0

OPM X 2 0 0 2

SBA X 0 0 0 0

SSA X 0 0 0 0

TO TAL 8 9 7 191 6 9 188

* Agency head has pro vided over all as sur ance that the agency has ad e quate and ef fec tive man age ment

con trols, ex cept for the ma te rial weak nesses iden ti fied.

38 Federal Financial Management Report
Ap pen dix C: Gov ern ment Cor po ra tions Re quired

to Sub mit Au dited Fi nan cial State ments to OMB

FY 2001 Opin ion

Com mu nity De vel op ment Fi nan cial In sti tu tions Fund ·········· Unqualified

Cor po ra tion for Na tional and Com mu nity Ser vice············ Unqualified

Ex port-Import Bank of the United States (EX/IM) ··········· Unqualified

Fed eral Crop In sur ance Cor po ra tion·················· Unqualified

Fed eral De posit In sur ance Cor po ra tion ················ Unqualified

Fed eral Home Loan Banks······················ Unqualified

Fed eral Housing Ad min is tra tion Fund ··············· Unqualified

Fed eral Prison In dus tries, In cor po rated ················ Unqualified

Fi nancing Cor po ra tion ······················ Unqualified

Gov ern ment Na tional Mort gage As so ci a tion ·············· Unqualified

Na tional Credit Un ion Ad min is tra tion Cen tral Li quid ity Fa cil ity ····· Unqualified

Over seas Pri vate In vest ment Cor po ra tion ··············· Unqualified

Pen sion Ben e fit Guar anty Cor po ra tion················· Unqualified

Res o lu tion Funding Cor po ra tion ·················· Unqualified

Ru ral Tele phone Bank························ Unqualified

Saint Law rence Sea way De vel op ment Cor po ra tion ··········· Unqualified

Ten nes see Val ley Au thor ity ····················· Unqualified

Federal Financial Management Report 39
Federal Financial Management Report 41

Ap pen dix D: Base line Score card Grades as of

Sep tem ber 30, 2001

The Department of Agriculture—Auditors have been unable to express an

opinion on the combined USDA financial statement since 1996 when the agency

first began submitting financial statements to OMB. Also, the auditors were unable

to render an opinion on U. S. Forest Service’s financial statement due to their

inability to obtain timely, sufficient, and competent information. USDA’s financial

systems do not comply with federal financial management systems requirements or

applicable federal accounting standards. U. S. Forest Service also has significant

and chronic Anti-Deficiency Act violations. USDA has made significant progress

in improving its performance. Examples include: (1) implementation of a financial

system that will comply with federal financial management system requirements is

scheduled for completion in October 2002, (2) in FY 2001, 4 of 5 stand-alone

audits received an unqualified opinion, and (3) USDA is continuing efforts to

reduce the error rate in the Food Stamp and School Lunch programs.

l

Department of Commerce—Commerce currently fails to fully meet Federal

financial management systems requirements. However, the department’s integrated

system should be completely deployed by October 2003. Commerce has had

unqualified audit opinions since 1999. l

Department of Defense (DOD)—With over 1,000 systems providing financial data,

DOD has several serious failings in financial management:

• it is not substantially compliant with Federal financial management

standards; 

• it cannot provide a clean assurance statement about its internal controls;

and 

• it has consistently received a disclaimer by its auditors on its financial

statements. 

The DOD Inspector General and the General Accounting Office (GAO) have issued

a series of reports critical of DOD’s financial management. For example, a recent

GAO report criticized DOD’s excessive use of funds in “canceled accounts” to pay

contractor bills.

Until adequate progress is made at DOD, the financial statements of the entire

government will not receive an opinion from GAO. DOD has launched a major

initiative to improve business and financial processes and systems. It is working

closely with OMB to develop an enterprise architecture and systems that will

support efficient operations, and provide accurate, timely, and useful financial

information. This will take a number of years, but DOD has documented a clear

commitment to improvement and is moving forward.

l
Department of Education—For 2000, the Department of Education received a

“qualified” opinion on its financial statements. The auditors continued to cite

material weaknesses from prior audits, including failure to reconcile financial data

from different sources and inadequate internal controls. In 2000, the general ledger

was not compliant with Federal requirements. The department is taking aggressive

steps to fix past problems. Improvements were noted in the FY 2001 audit, but

significant problems still remained. This year, it will implement Oracle Federal

Financials (an accounting package), prepare quarterly instead of only annual

financial statements, and reconcile transaction-level data with summary balances in

the general ledger. Because of these changes, the Department of Education expects

to achieve a clean audit opinion for the 2002 financial statements.

l

Department of Energy (DOE)—DOE was one of only six agencies to receive an

unqualified audit opinion on its first consolidated financial statement. It has

continued to receive unqualified opinions every year, except 1998 because of its

environmental liabilities, and received one again this year. DOE was also one of

four agencies whose financial systems met the Federal Financial Management

Improvement Act (FFMIA) requirements. Despite these successes, DOE is still

reporting material management control weaknesses. DOE will continue to work on

resolving these issues and will:

• Develop a financial management plan that includes a schedule and

addresses system integration, especially with its contractor systems;

• Integrate financial, budget, and program information in its systems in

order to provide cost information related to performance; and,

• Ensure implementation of its Business Management Information System

(BMIS) is on track to be deployed in FY 2003 and that it will correct

managerial accounting issues as planned.

l

Department of Health and Human Services (HHS)—HHS’ financial management

systems have been non-compliant with Federal laws and regulations since 1996, and

its systems remain inadequate to produce reliable financial information. To solve

these problems, HHS has begun planning and implementation of a seven-year

Unified Financial Management System project. HHS will continue to produce the

Medicare comprehensive error rate. The Administration for Children and Families

will review its major programs to assess risks and establish methodologies to reduce

overpayments. 

l

42 Federal Financial Management Report
Department of Housing and Urban Development (HUD––HUD’s financial

systems have been plagued with deficiencies for many years. HUD’s financial

statements improved last year to merit an unqualified audit opinion for the second

consecutive year, albeit with citations for 9 reportable conditions and five material

weaknesses. In 2002, actions were completed to close five financial statement audit

recommendations, resulting in the elimination of two reportable from the 2000 audit. 

In 2002, HUD will work to maintain an unqualified opinion and complete corrective

actions to address other audit recommendations, reportable conditions, and material

weaknesses. HUD will revamp its funds control system in 2002 to overcome

internal control deficiencies that led to overspending its appropriation in 2000. It

will improve the inadequate Federal Housing Authority (FHA) accounting system

with a new FHA general ledger by October 2002. A HUD task force has been

working with HUD intermediaries and clients for several months on plans to reduce

overpayment of rent subsidies; HUD has set aggressive interim targets to reduce

overpayments in 2003, 2004, and 2005.

l

Department of the Interior (DOI)––The department received a clean audit

opinion. However, FFMIA problems and material weaknesses in internal control

remain. In particular are problems in its tribal trust accounting. DOI cannot

provide assurances that its trust management systems and internal controls meet

Federal standards and they represent a material weakness in internal control for the

audit. DOI has committed to provide a strategic plan in July on trust reforms,

including computer security.

l

Department of Justice (DOJ)––DOJ is not in compliance with the requirements of

the Federal Financial Management Improvement Act. It also does not meet Federal

accounting standards related to property accounting. Since DOJ has material system

nonconformances, it cannot provide a full assurance statement about its controls.

DOJ received a clean opinion in FY 2001 on all of its statements. DOJ has made

progress in addressing issues identified by its auditor during the course of its annual

financial audit. It expects to continue to receive unqualified opinions in the future.

In addition, DOJ will move forward to migrate its components from old financial

systems to new systems that meet applicable standards.

l

Department of Labor (DOL)—Although DOL has received unqualified opinions

from independent auditors on its financial statements since 1997, in FY 2000 it has

identified two small systems in its Wage and Hour Division that did not comply

with accepted Federal standards for financial management and internal controls.

With subsequent improvements made, these systems were not cited in the FY 2001

audit as being non-compliant with the Federal Financial Management Improvement

Act, although reportable conditions remained. Recognizing the importance of

financially sound systems, DOL will correct these problems in 2002. DOL will

improve its oversight of the performance of its grantees and contractors and increase

its auditing and technical assistance to states to identify fraud and reduce erroneous

payments in Unemployment Insurance.

l

Department of State––The department received an unqualified opinion on its 2000

and 2001 financial statements and submitted them on time. Nonetheless, its financial 

systems are not compliant with Federal requirements and have received only a

qualified assurance statement. The department plans to fix these issues through

office consolidation and installing a new system that will meet the FFMIA

requirements. The new system will be completed by the end of 2003.

l

Federal Financial Management Report 43
Department of Transportation (DOT)––DOT’s financial systems fail to meet

financial management requirements and standards, receiving a material control

weakness for FAA’s property accounting in its audit. DOT also does not have

integrated financial and performance management systems. However, senior

management is addressing these shortfalls, has submitted a new plan to comply with

financial management standards, and is implementing a new, integrated financial

system. DOT received an unqualified audit opinion for FY 2001 consolidated

financial statements. DOT has a solid plan to address the erroneous payments in its

four programs: AIP, Federal Highway Administration Planning and Construction,

Transit Capital, and Formula grants.

l

Department of the Treasury––The department received an unqualified opinion on

its 2000 financial audit. However, substantial weaknesses in financial management

systems and controls at the U.S. Customs Service and the Internal Revenue Service

(IRS), the two largest bureaus in Treasury, hamper effective management and make

it difficult for the department to sustain an unqualified opinion in the future.

Improvements are also needed to reduce the number of improper payments. An

estimated 25 percent of Earned Income Tax Credit payments were made incorrectly

for tax year 1997. The department is working to improve its financial systems and

has a $154 million compliance program to reduce errors in the Earned Income Tax

Credit program. It is also moving aggressively to accelerate the preparation of

monthly financial statements and expects to set the standard for the government in

timely statements by the summer of 2002. In addition, the budget proposes

legislative change to allow IRS to match the income reported on student aid

applications with tax return data. This will help reduce errors in the Department of

Education’s student aid programs and save an estimated $138 million in 2003.

l

Department of Veterans Affairs (VA)––A has persistent problems with internal

controls, which include nine material weaknesses, four of which have been carried

over from prior years. However, VA has developed a financial management plan to

address its problems, and is now moving towards implementing an acceptable

financial system in 2004.

l

Agency for International Development (AID)—Although a core accounting

system is in place in Washington, it has not yet been deployed overseas. Therefore,

almost 50 percent of AID-managed funds are not within the new system. Until its

field systems are modernized, AID will be unable to gain the benefits of modern

business practices in accounting, finance, procurement, and e-government. Further,

while the first full audit of AID’s financial statement is being conducted for 2001, it

is not clear that the Inspector General will be able to render an opinion. AID will

submit and implement a targeted remediation plan for its financial systems. The

agency study of business practices will include strategies to accelerate deployment

of the core accounting system.

l

Corps of Engineers––The Corps received a disclaimer of opinion on its financial

statements. The FY 2001 audit highlighted the same issues as in FY 2000:

(1) problems with determining the original costs of older existing plant,

property and equipment (PP&E), which affects the balance sheet, and (2) a

material weakness with computer security.

l

44 Federal Financial Management Report
Environmental Protection Agency (EPA)––EPA is unable to provide an

unqualified assurance statement as to systems of management accounting and

administrative controls because of material weaknesses, including information

security and NPDES permits. EPA is working to correct these material weaknesses. l

Federal Emergency Management Agency (FEMA)––FEMA is not

FFMIA-compliant; cannot provide a clean assurance statement on its controls; and

does not have integrated financial and performance management systems. FEMA

continues to have a problem with its financial management systems and reporting.

The systems, processes and infrastructure are not yet stable nor subject to the

appropriate levels of supervision and review in order to support timely and reliable

financial information. This year, the auditors have provided more details on where

FEMA has weaknesses (this was a concern of management from the last year.)

In addition, FEMA needs to improve its disaster cost projections, oversight of state

administration of public assistance and mitigation grants, and monitoring of unspent

funds. FEMA will develop an implementation plan for system improvements and

develop improved disaster cost projections by mid-2002.

l

General Services Administration (GSA)––GSA has received unqualified opinions

on its financial statements since it first began submitting them to OMB in FY 1996

and has been in compliance with FFMIA since 1997. GSA has no material

weaknesses as reported by the auditor and was able to provide a clean FMFIA

assurance statement for Section 2 and Section 4. GSA has resolved two of its 5

weaknesses associated with Section 2 of FMFIA. GSA still has two

nonconformances with Section 4 of FMFIA. To “get to green,” GSA needs to

successfully implement PEGASYS and demonstrate the integration of performance

and financial management systems.

l

National Aeronautics and Space Administration (NASA)––Despite its past

success in producing timely and unqualified financial statements, NASA’s financial

statements received a disclaimer of opinion, and the auditor cited one material

weakness. Because of the disclaimer, NASA’s score has been adjusted from its

original yellow to red. NASA still lacks systems to support day-to-day operations

and track task completion. Implementation of NASA’s Integrated Financial

Management System (IFMS) in 2004 will provide support in the future and

implement full cost management with NASA’s 2004 budget. NASA will proceed

with IFMS implementation and seek to accelerate it where justified.

l

National Science Foundation (NSF)––NSF is the Federal leader in financial

management and has met all core criteria for a green rating for financial

management. NSF’s financial management systems meet Federal financial

management system requirements and it has received unqualified and timely audit

opinions on its annual financial statements. NSF expects to maintain this position.

l

Office of Personnel Management (OPM)––Despite receiving an unqualified audit

opinion on its FY 2001 consolidated statements, OPM has yet to resolve major

problems with the Salaries and Expenses and Revolving Fund accounts. OPM has

two outstanding material nonconformances under the Federal Managers Financial

Integrity Act (FMFIA). Non-compliance with FFMIA (e.g., unresolved discrepancies

with Treasury over intragovernmental transaction reconciliations) was also reported. 

OPM implemented Phase I of a new financial system and expects to have all

FMFIA weaknesses and nonconformances corrected in FY 2002.

l

Federal Financial Management Report 45
Small Business Administration (SBA)––SBA has had an unqualified opinion for

six years in a row. This year, however, SBA’s head reported the agency not in

substantial compliance with FFMIA due to material weakness in SBA’s financial

reporting process; thus resulting in an adjustment of SBA’s score from its original

yellow to red. This occurred because SBA ambitiously attempted to meet the FY

2003 reporting deadline of February 1. Auditors indicated that SBA was unable to

provide complete, reliable, timely, and consistent financial management information

on operations to enable management to fulfill its responsibility of being accountable

to the public and provide timely information for managing current operations. SBA

did, however, provide accurate information for the February 27 due date. In FY

2000, auditors indicated that the financial reporting processes and procedures were

not adequately documented and a fully effective quality assurance process was not

in place. This year, the auditors found that the documentation had improved, but

the overall process had worsened. SBA implemented JAAMS, its new core financial

management system in October 2001 that uses Oracle COTS and is reported to be

running fine.

SBA’s financial management system is compliant with relevant Federal law. In

addition, SBA is improving the accuracy of cost estimates for its general business

loan program and will continue its successful asset sales program. In contrast to

these successes, the Loan Monitoring System (LMS) technology project is over

budget, behind schedule, and not performing as expected. SBA’s inability to

implement LMS adversely affects its risk management and oversight of its $50

billion loan portfolio. SBA is refining the LMS project and developing specific

implementation milestones.

l

Smithsonian Institution––Although it has received clean opinions on its audited

financial statements, the Smithsonian is concerned that the unqualified opinion may

be in jeopardy due to the inadequacy of its accounting system. The recent National

Academy of Public Administration report notes that “the Smithsonian’s accounting

system provides useful information only at the summary level and does not support

either Federal requirements for obligation and outlay information or the

Smithsonian’s internal project management requirements.” The Smithsonian is in

the process of implementing an Enterprise Resource Planning (ERP) system which

is key to improvement in the Improved Financial Performance area. Initial

deployment is scheduled for October 2002 with system completion scheduled for

April 2005. Smithsonian is currently developing an integrated timeline and

expected deliverables, and updating/establishing procedures for accounts payable,

payroll, and accounts receivable. ERP progress is on track.

l

46 Federal Financial Management Report
Social Security Administration (SSA)––In 2001, SSA received an unqualified

audit opinion on its financial statements, and its accounting and internal control

systems met Federal standards. However, SSA does not have fully integrated

financial and operating management systems, which support day-to-day

decision-making. SSA is on track to integrating its financial and performance

management system, and will continue to integrate it through several functional

improvements that will be completed in 2002. These improvements will link source

databases to the system and consolidate several reporting systems while retaining

the capability to produce all the data needed. SSA is also committed to and is

beginning the implementation of a new cost accounting system in 2002. Another

key performance area is reducing erroneous payments. The problem plagues the

agency’s Supplemental Security Income (SSI) program, which remains a high-risk

program due to improper payments. In recent years, SSA has increased its funding

for initiatives focused on identifying erroneous payments. The 2003 budget will

enable SSA to increase SSI non-disability redeterminations by nine percent and

achieve a payment accuracy rate of 94.7 percent.

l

Federal Financial Management Report 47