Federal Financial

Management Report

2005

Executive Office of the President

Office of Management and Budget

Washington D.C.
Table of Contents Page

Executive Summary............................................................................................................. 1

Office of Federal Financial Management .......................................................................... 4

Improving Financial Reporting.......................................................................................... 5 

Achieving Accountability – FY 2004 Financial Results ........................................... 5 

Reducing Material Weaknesses................................................................................. 6 

Financial Management Improvement Initiatives.............................................................. 9

Internal Control.......................................................................................................... 9 

Full Implementation of Federal Financial Management Improvement Act ............. 10 

Strengthening Asset Management ............................................................................. 10 

Eliminating Improper Payments................................................................................ 11 

Strengthening Control over Federal Charge Cards.................................................... 13

Recovery Auditing..................................................................................................... 14 

Core Financial Management Systems ...................................................................... 15 

The Chief Financial Officers Council ................................................................................ 16 

CFO Council Committees .................................................................................................. 17 

Best Practices............................................................................................................. 17 

Financial Management Policies and Practices........................................................... 19 

Financial Reporting Acceleration ............................................................................. 19 

Financial Systems and E-Government....................................................................... 21

Grants Governance..................................................................................................... 22 

Improper Payments.................................................................................................... 23 

Performance Measurement ........................................................................................ 24

Five Year Outlook ............................................................................................................... 25

Appendices ........................................................................................................................... 27

Appendix A: Summary of FY 2004 Financial Statement Results by Agencies 

 and Selected Components.................................................................................... 28 

Appendix B: Material Weaknesses Reported by Auditors and Federal 

 Managers’ Financial Integrity Act Tables........................................................... 30 

Appendix C: Government Corporations Required to Submit Audited Financial 

 Statements to OMB.............................................................................................. 34 

Appendix D: Accountability for Tax Dollars Act Agencies Required to Submit 

 Audited Financial Statements to OMB................................................................ 35

Appendix E: Executive Branch Management Scorecard......................................... 37 

Federal Financial Management Report (2005) i 
Executive Summary 

On August 9, 2004, President George W. Bush met with the President’s Management Council 

and the lead members of the President’s Management Agenda (PMA). Along with the other four 

members of the PMA leadership team at the Office of Management and Budget (OMB), I had 

the opportunity at this meeting to brief the President on the results we are achieving in the area of 

financial management and in the Improved Financial Performance initiative of the PMA. 

There was much to report at this meeting. Fiscal year (FY) 2004 was a year of demonstrable 

results in the Federal Government’s financial management. The agencies subject to the Chief 

Financial Officers (CFO) Act of 1990 have achieved new levels of timeliness and frequency in 

their financial reporting, have measured the accuracy of their payments to a greater extent than 

ever before, and have laid the foundation for comprehensive real property asset portfolio

management. 

Financial management leaders also extended beyond the CFO ranks in productive joint efforts 

during FY 2004. Under the direction of OMB’s Office of Federal Financial Management 

(OFFM), the Chief Financial Officers Council and the Inspectors General community partnered 

to develop new standards of assurance for internal control over financial reporting. 

Collaboration across management disciplines was also evident in the joint CFO-Chief

Information Officer (CIO) development of the new paradigm for ensuring effective and efficient

investments in financial management systems. 

Achieving Private Sector Standards of Timeliness 

As recently as ten years ago, CFO Act agencies were not required to issue audited year-end 

financial statements. Since then, agencies have been engaged in a process of catching up to 

long-established private sector practices of financial reporting. The financial management

leadership of the Bush Administration has increased the pace of progress in reaching this

standard. 

In FY 2004, a record 22 of the 23 CFO Act agencies completed their Performance and

Accountability Reports just 45 days after the end of the fiscal year. Before the Administration 

came to office, these agencies took as long as five months to complete their financial reports. 18 

of the 23 agencies received unqualified opinions in an environment of increased audit rigor, as 

well as substantially improved timeliness. 

The issuance of the consolidated Financial Report of the United States Government was also

accelerated to December 15, 2004 – one month after the standalone agency reports were issued.

This compares to a release date of late February 2004 for the FY 2003 report. 

With this year’s successful efforts, the public and Congress have information in a more timely

manner to assess how well an agency is meeting its mission. Sooner than ever before, the 

American taxpayer can now more readily access information that shows how tax dollars are 

being used. 

Federal Financial Management Report (2005) 1 
In addition, under OFFM’s direction, agencies have been required for the first time to prepare 

interim financial statements throughout the year. During FY 2004, all CFO Act agencies 

prepared quarterly financial statements on a timely basis. 

Improving the Accuracy of Payments 

Pursuant to the guidance issued by OFFM in May 2003, Federal agencies implemented the 

requirements of the Improper Payments Information Act (IPIA) of 2002 for the first time in 

2004. Reporting required by the IPIA was captured in a common format in each agency’s 

Performance and Accountability Report. 

A comprehensive report on the results of the agency-specific efforts – highlighting significant

findings, agency accomplishments, and remaining challenges – may be found at

http://www.whitehouse.gov/omb/financial/fia_improper.html. This report provides the clearest 

picture policymakers and federal agency managers have ever had on the extent of improper 

payments and the critical challenges faced in eliminating them. This year’s efforts provide the 

necessary baseline from which short and long-term program payment accuracy improvement 

strategies will be established. 

In the coming years, agencies will focus on expanding sampling and rate development to all risk 

susceptible programs while continuing their efforts to reduce and ultimately eliminate improper 

payments. Beginning with the first quarter of FY 2005, these efforts will be tracked in a new 

PMA program initiative. 

Effective Real Property Asset Management 

Federal agencies are taking major steps toward implementing best practices employed by private 

sector real property portfolio managers. In February 2004, President Bush signed Executive 

Order 13327, “Federal Real Property Asset Management,” to better ensure the most effective 

management of the hundreds of billions of dollars in real property owned by the Federal 

Government. Under this order, the needed infrastructure – such as comprehensive asset 

management plans, meaningful performance measures, and detailed inventories – are being 

developed for all agencies with significant real property holdings. With these tools, agencies 

will be equipped for evaluating their currently owned and leased properties versus their future 

need. We will better manage properties that are needed, and we will dispose of the excess. As 

with improper payments, real property asset management results are being monitored under a 

new PMA program initiative. 

Strengthened Accountability for Internal Control 

Last year I reported that OFFM would convene a working group of CFOs and Inspectors General 

to review the new internal control assurance requirements applicable to the private sector for 

their relevance to Federal Government agencies. I am pleased to report that, thanks to the

diligent sustained effort of this joint committee throughout 2004, significant enhancements to the 

current assurance structure were proposed. These policy recommendations have been 

incorporated into a revised OMB Circular A-123, which was issued in December 2004. 

2 Federal Financial Management Report (2005) 
These policy changes will strengthen the requirements for conducting management’s assessment 

of internal control over financial reporting. The circular now emphasizes the need for agencies 

to integrate and coordinate internal control assessments with other internal control-related 

activities. 

The new requirements are effective beginning with FY 2006. During FY 2005, agencies will be 

preparing for implementation and will be assisted by an implementation guide to be issued in

spring 2005.

A New Era in Financial Management Systems 

Members of the CFO Council partnered with the CIOs of major agencies to develop a strategy to

meet the Federal Government’s future needs for core financial management system functionality. 

This effort focused on minimizing redundant investments and maximizing the prevalence of 

cutting-edge technology.

The result is a service model built around centers of excellence. In this structure, entities 

meeting the stringent qualification requirements of a new due diligence checklist will be eligible 

to provide core financial management system functionality to client agencies. Rather than

attempting to maintain the highest level of functionality at every agency, which has proven to be

a barrier to successful management in the past, this new model will allow for focused investment 

and enhancement to include the broader benefit of client agencies. 

Migration to this model will take place over a number of years as agencies face significant 

upgrades to their financial management systems. 

Building on our Success 

The Federal Government is executing its financial management duties more responsibly today 

than it did just a few short years ago. FY 2004, in particular, was a year of advancement in the 

quality of its financial management. 

Significant progress has been made on many deficiencies, as noted in this summary and in the 

text that follows. But much remains to be done before the government can say that it has 

achieved the level of financial management for which we are striving. The path before the 

financial community is clear and, with the momentum and successes of 2004, there is every

reason to expect continued improvement. We owe the American citizens no less. 

 Linda M. Springer 

 Controller

Federal Financial Management Report (2005) 3 
Office of Federal Financial Management 

OMB’s Office of Federal Financial Management (OFFM) – headed by the OMB Controller and 

under the direction of the OMB Deputy Director for Management – is responsible for the

financial management policy of the Federal Government. OFFM’s specific responsibilities 

include implementing the financial management improvement priorities of the President,

establishing government-wide financial management policies of executive agencies, and carrying 

out the financial management functions of the CFO Act. In short, the mission of OFFM is to 

promote and support first class financial management in the executive branch of the Federal 

Government. 

OFFM is structured to address financial management issues, and includes subject matter experts 

to provide leadership across its areas of responsibility. OFFM is comprised of three separate 

issues-oriented branches with the following objectives: 

• Financial Standards and Grants Branch – develops financial management policies 

for Federal agencies and grant recipients; facilitates the development of timely, 

accurate and useful financial information to support management decisions; and

ensures accountability and effective customer service for Federal grants programs. 

• Financial Integrity and Analysis Branch – ensures that Federal financial programs

are measuring and achieving intended results, eliminating inefficiencies and

improprieties, and managing their financial activities in accordance with superior 

practices. 

• Federal Financial Systems Branch – ensures that the government-wide Federal 

financial management systems architecture is producing the information needed to 

support first class financial management. 

Each OFFM branch works directly with agency Chief Financial Officers (CFOs) and Inspectors 

General (IGs), as well as the CFO Council, to provide guidance to agencies in relevant areas of 

financial management. 

4 Federal Financial Management Report (2005) 
Improving Financial Reporting 

[B]eing results-oriented is about delivering results AND also about our having an expectation 

that costs will be managed, the government will spend the people’s money wisely, and that

managers will be held accountable for achieving results. 

Clay Johnson III, OMB Deputy Director for Management 

August, 2004 

The President’s Management Agenda (PMA) was launched early in the Bush Administration to 

address specific deficiencies and problems in the Federal Government’s management practices.

One of the five government-wide PMA initiatives is Improved Financial Performance. This 

initiative in part directs agencies to possess more timely and reliable financial information, 

improve the integrity of their financial activities, and have sound and dependable financial 

systems. 

Under the Improved Financial Performance initiative, agency Chief Financial Officers (CFOs)

share responsibility – both individually and through the efforts of the CFO Council – for 

improving the financial performance of the government. It is through this initiative, in 

conjunction with the other government-wide and program initiatives of the PMA, that the 

government is improving its financial reporting practices. 

Achieving Accountability – FY 2004 Financial Results 

For the FY 2004 reporting cycle, agencies continued to meet the challenges involved with 

improving the financial management under the Improved Financial Performance initiative. Such 

efforts are exemplified by a record number of agencies that issued their Performance and 

Accountability Reports (PARs)1

, including audited financial statements, within 45 days after the

end of the fiscal year. This accelerated deadline, required by the Administration to begin this

past fiscal year, significantly reduces a reporting delay of five months that had been typical prior 

to this year. This year, 22 of the 24 CFO Act agencies submitted their PARs by November 15 in

FY 2004. 

While two agencies – the Departments of Homeland Security (DHS) and Health and Human 

Services (HHS) – did not meet the November 15 deadline, DHS issued its PAR just four days 

after the 45 day deadline, while HHS submitted its PAR in early December. These two agency

submissions should still be considered a major accomplishment, coming in more than two-and-ahalf months earlier than required by statute. 1

 Agencies subject to the Chief Financial Officers Act and the Accountability for Tax Dollars Act must submit an annual PAR, 

which contains important information about the financial condition and operations of the agency, including an auditor’s opinion

on the agency’s financial statements. Information provided in the PAR supports agency management and accountability for the 

taxpayers money, and enables the public and Congress to assess the performance of an agency relative to its mission and 

activities. 

Federal Financial Management Report (2005) 5 
In addition to the CFO Act agencies, agencies subject to the Accountability for Tax Dollars Act 

(ATDA) also worked to issue their audited financial statements within 45 days after the end of

the fiscal year. Of these 75 ATDA agencies, 25 met the accelerated deadline. (Please see 

Appendix D for additional information.) This acceleration is especially noteworthy given that a 

significant number of these smaller agencies were producing audited financial statements for the 

very first time. 

Despite the accelerated reporting time frame in FY 2004, the same number of CFO Act agencies 

received unqualified audit opinions on their financial statements. Of the 24 major Federal 

agencies, 18 received unqualified audit opinions this past fiscal year. This is a noteworthy

outcome given the shorter amount of time to prepare audited financial statements in FY 2004, as 

well as the increased rigor of the audit process. (Appendix A contains the summary of FY 2004 

agency financial statement results.) 

One agency – the Small Business Administration (SBA) – received a qualified opinion, while 

five agencies – the Departments of Defense, Homeland Security, Housing and Urban 

Development, Justice, and the National Aeronautics and Space Administration – received

disclaimers on their statements. For several of the agencies not receiving an unqualified opinion,

in general, increased audit work surfaced issues that could not be resolved in time to meet the 

accelerated reporting deadline. OMB looks forward to working with these agencies to resolve 

these issues in FY 2005. 

Noteworthy progress was especially made at SBA whose audit opinion improved from a

disclaimer in FY 2003 to a qualified opinion in FY 2004. The improvements made by SBA over 

the past year have positioned it well for receiving an unqualified opinion in the future. 

The earlier financial reporting of the agencies in FY 2004 serves several important purposes. For 

example, the accelerated reporting provides the foundation for the earlier issuance of the 

government-wide report on December 15 – which was accomplished in 2004 for the first time

ever. Additionally, the earlier financial reporting provides agencies with more timely financial 

information from which to base program management decisions. 

 

In FY 2004, Federal agencies also progressed toward the demonstration of first class financial

management, as reflected in an agency’s ability to attain “green” status on the Improved

Financial Performance Initiative of the PMA. Since the last issuance of this report, the

Departments of Energy (DOE) and Labor (DOL) have achieved green status on this initiative, 

joining the Department of Education, Environmental Protection Agency, National Science

Foundation, and Social Security Administration. Now, DOE and DOL are demonstrating first 

class financial management principles and practices. 

Reducing Material Weaknesses 

In FY 2004, agencies also continued to work to fully achieve the President’s goal of Improved

Financial Performance by reducing their material weaknesses. These material weaknesses

include those that are auditor-reported, as well as those pursuant to Sections 2 and 4 of the 

Federal Managers’ Financial Integrity Act (FMFIA) of 1982. (Appendix B of this report depicts 

6 Federal Financial Management Report (2005) 
the number of auditor-reported material weaknesses, as well as the number of FMFIA internal 

control weaknesses and systems nonconformances.) 

Material internal control weaknesses are reported by independent auditors as part of the annual 

financial audit process. Across the government, a total of 13 new weaknesses were reported in 

FY 2004 – a net increase of two new weaknesses from FY 2003. This small increase may be

attributed to the accelerated reporting requirement, which placed greater emphasis on the need 

for effective financial reporting controls. However, as internal control is strengthened at 

agencies to routinely meet accelerated reporting dates, internal control weaknesses should be

reduced. 

In FY 2004, the majority of the auditor-reported weaknesses were related to: deficiencies in 

financial management and reporting; financial systems and security; and property, plant, and

equipment. The following chart shows the distribution of the auditor material weaknesses by

category: 

Auditor Material Weaknesses by Category 

 Financial Management and Reporting

2 1 3 Financial Systems and Security

3 15 Property, Plant, and Equipment

3 Intra-governmental Reconciliation

 Credit Reform

 Fund Balance with Treasury

4 Accounts Payable and Other Liabilities

 Grants Management 8 11

 Funds Control

For the second year in a row, the most noteworthy improvement in the area of material 

weaknesses may be the U.S. Agency for International Development (USAID). At USAID, three 

material weaknesses were resolved in FY 2004. 

Agency progress to correct internal control weaknesses is monitored on a quarterly basis as part 

of the PMA scorecard, as agencies must not have any material internal control weaknesses in

order to achieve “green” status. This fiscal year, additional emphasis will be placed on 

preventing new weaknesses from surfacing. OMB also plans to issue strengthened requirements 

for conducting assessments of the effectiveness of internal control over financial reporting. 

OMB will continue to work closely with the agencies to assist them in developing detailed 

corrective actions plans to reduce existing material weaknesses and to prevent new ones. 

Federal Financial Management Report (2005) 7 
In accordance with FMFIA, OMB also requires the head of each executive agency to report 

annually on whether there exists reasonable assurance that the agency’s controls are achieving 

their intended objectives and whether the agency’s financial management systems conform to

government-wide requirements. Agency heads are thus required to identify material weaknesses 

related to agency programs and operations pursuant to Section 2 of FMFIA, as well as 

nonconformances with government-wide financial systems requirements pursuant to Section 4 of 

FMFIA. 

In FY 2004, nine agency heads provided assurance that the management controls were adequate 

and thus reported no material weaknesses. The most notable agencies that resolved material 

weaknesses were: the Department of the Interior, with a net reduction of six; the Department of 

Agriculture, with a net reduction of five; and the General Services Administration, with a net 

reduction of three. 

FMFIA Issues Identified by Agency Heads

Section 2

(Internal Control Weaknesses) 

Section 4 

(Systems Nonconformances) 

Beginning FY 2003 150 27

New 18 4

Resolved 48 7

Consolidated 15 2

Reassessed 16 1

Beginning FY 2004 89 21

New 33 5

Resolved 36 10

Consolidated 0 0

Reassessed 3 1

Ending FY 2004 83 15

As shown above, the overall number of agency-identified FMFIA internal control weaknesses 

and systems nonconformances decreased by nearly 11% in FY 2004 compared to FY 2003. 

Taken separately, the government reduced its Section 2 weaknesses by seven percent in FY

2004. Additionally, the government reduced its Section 4 nonconformances by 29% in FY 2004 

compared to FY 2003. 

8 Federal Financial Management Report (2005) 
Financial Management Improvement Initiatives 

During FY 2004, the Administration continued its efforts to improve the financial management

of the Federal Government through several different initiatives. 

Internal Control 

Effective internal control is a key factor in producing timely and reliable financial information 

and helps ensure that programs are managed with integrity and resources are used efficiently and 

effectively. Ensuring the proper stewardship of federal resources is a fundamental responsibility 

of agency managers and staff. 

The recent emphasis on internal control and reliable financial reporting contained in the 

Sarbanes-Oxley Act (SOX) of 2002 for publicly-traded companies has served as an impetus for a 

re-examination of internal control requirements within the Federal Government. During FY 

2004, OMB convened a committee of representatives from the Chief Financial Officers’ Council

(CFOC) and the President's Council on Integrity and Efficiency (PCIE) to review the SOX 

requirements and determine how those requirements may, or may not, apply to the Federal

Government. 

This joint CFOC/PCIE committee determined that within the current federal environment, 

agencies are subject to a variety of existing legislative and regulatory requirements intended to 

promote and support effective internal control. At the center of these existing requirements is the 

Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and OMB Circular No. A-123, 

Management Accountability and Control, which requires agencies to annually evaluate and 

report on the effectiveness of their internal control and report material weaknesses to the

President and the Congress. 

In addition, FMFIA also requires an annual statement on whether the agency’s financial 

management systems conform to government-wide requirements. These federal financial 

management requirements are mandated by the Federal Financial Management Improvement Act

of 1996 (FFMIA) and OMB Circular No. A-127, Financial Management Systems. FFMIA

requires agency management and financial statement auditors to determine whether financial 

management systems meet systems requirements, comply with the U.S. Standard General Ledger 

at the transaction level, and adhere to the standards promulgated by the Federal Accounting 

Standards Advisory Board (FASAB). 

The joint CFOC/PCIE committee recommended that OMB strengthen its existing guidance for 

assessing the effectiveness of internal control. Thus, the joint committee developed amendments

to OMB guidance that would adopt the standards prescribed in the Government Accountability

Office’s (GAO) Standards for Internal Control in the Federal Government (November 1999), 

which are consistent with the Internal Control-Integrated Framework issued by the Committee of 

Sponsoring Organizations of the Treadway Commission. These amendments also require a more 

comprehensive and coordinated approach to assessing the effectiveness of internal control over 

Federal Financial Management Report (2005) 9 
financial reporting. OMB released these amendments in the revised Circular A-123 in December 

2004, to be effective beginning in FY 2006. 

Full Implementation of Federal Financial Management Improvement Act 

In FY 2004, OMB continued to work to ensure full and thorough implementation of the Federal

Financial Management Improvement Act (FFMIA) of 1996. Such full implementation is an 

important component of providing government managers with reliable, useful, and timely 

financial information. 

In general, the implementation of FFMIA builds upon the foundation originally laid by the CFO 

Act. Specifically, FFMIA requires CFO Act agencies to apply and maintain financial 

management systems that substantially comply with: (1) federal financial management systems 

requirements; (2) applicable federal accounting standards; and (3) the United Stated Standard

General Ledger at the transaction level. FFMIA also requires auditors to state in their financial 

statement audit reports whether the agencies’ financial management systems comply with 

FFMIA’s system requirements. 

Despite 18 CFO Act agencies achieving unqualified audit opinions in FY 2004, many continue 

to use financial management systems that are not integrated and produce data that is not standard 

or timely. At the end of FY 2004, eight of the CFO Act agency heads, with auditor concurrence, 

reported overall compliance with FFMIA. While many agencies continue to make progress in 

implementing FFMIA, significant work remains. 

 

OMB efforts for full FFMIA implementation include oversight of agencies’ financial statement 

audits, as well as incorporating FFMIA requirements into the financial management performance

goals of the PMA. This balanced, yet robust, approach blends the rigors of the audit process 

with substantive goals agreed to by both OMB and agency management. Further oversight of the 

deployment of agencies’ financial management systems, combined with the disciplined

processes inherent in the PMA and the Financial Management Line of Business initiative, will 

help lead to more complete FFMIA implementation and thereby enhance the government’s 

overall performance. 

Strengthening Asset Management 

Strengthening the management of the Federal Government’s assets has been an important

objective of this Administration – especially given the fact that the government owns 

approximately $650 billion in Property, Plant, and Equipment (PP&E) and $260 billion in 

Inventories and Related Property (according to its FY 2004 financial statements). The 

Administration continues to expect its assets be justified and accounted for, and that plans be 

made for purchases, management, maintenance, and operation. 

 

In FY 2004, the Administration took several steps to improve the management of real property 

on a government-wide level. In early February, the President signed Executive Order 13327,

“Federal Real Property Asset Management.” This order directed all major agencies to, among 

10 Federal Financial Management Report (2005) 
other requirements, establish the position of a Senior Real Property Officer, who will be held 

accountable for the effective management of agency real properties. 

 

The executive order also created an interagency Federal Real Property Council (FRPC) to 

develop guidance, serve as a clearinghouse for best practices, and facilitate the efforts of the 

agency senior real property officers. The FRPC began its work by establishing 10 Guiding 

Principles that govern the efforts of the Council and its four committees. These committees are: 

• The Asset Management Plan Committee – focusing its efforts on establishing 

required components that each agency must include in their agency Asset 

Management Plans. 

• The Property Inventory Committee – outlining 23 data elements to be reported by 

each agency into a government-wide and descriptive inventory database. 

• The Performance Measures Committee – working on establishing common 

government-wide performance measures in the areas of cost, condition, utilization,

and mission dependency that will monitor agency progress. The Committee will 

also establish a disposal algorithm to aide in the identification of properties that are 

not needed. 

• The Systems Committee – outlining the business needs for the government-wide

Property Inventory system that will capture the data on the 23 FRPC data elements. 

In conjunction with the executive order, a new program initiative was added to the President’s

Management Agenda in February of 2004. This new Federal Real Property Asset Management

initiative applies to the largest Federal landholding agencies, which are given a “score” on the

status and progress of their real property management improvement efforts on the quarterly PMA 

scorecard. Asset Management Scorecards began in the third quarter of 2004, and agencies have

shown progress toward improving their status scores. 

Over the next several years, it is the goal of this Administration for all major agencies to develop 

and implement effective asset management plans, identify and apply appropriate performance

measures, and to work toward the development of a comprehensive and descriptive database of

all Federal real properties. The asset management plan, performance measures, and the database 

will all serve to assist agency management in making informed decisions about what properties 

are needed, are being utilized effectively, or qualify for disposal. 

 

Eliminating Improper Payments 

As part of the PMA’s Improved Financial Performance initiative in 2001, the Administration’s

efforts to eliminate improper payments initially focused on the Federal Government’s major 

benefit programs. The Administration first identified those programs that make payments in 

excess of $2 billion annually, and then required those agencies to assess the risk of, estimate the 

extent of, and put in place a strategy to eliminate improper payments. Based on the agencies’ 

Federal Financial Management Report (2005) 11 
estimates of improper payments made in these programs – making nearly $1 trillion in annual 

payments – improper payments exceeded $35 billion a year. 

This fiscal year represents the first full year that OMB is implementing the Improper Payments 

Information Act (IPIA) of 2002, P.L. 107-300, which codifies and expands the President’s 

initiative to eliminate improper payments. The IPIA extends the range of programs that the

executive branch will assess to all Federal payment streams. Thus, more programs that make 

hundreds of billions of dollars in payments annually can now also be targeted. 

OMB issued guidance to agencies regarding how to go about complying with the requirements of 

the new law. As part of IPIA implementation, Federal agencies have established specific

milestones to: 1) develop program inventories; 2) perform risk assessments to determine which 

programs are risk susceptible; 3) statistically sample those programs determined to be high risk; 

4) create corrective action plans; and 5) establish baseline error rates and improvement targets 

for future reporting. 

As part of this implementation, agencies have now identified an additional $400 billion in risk 

susceptible outlays to date – in addition to the previously reviewed $1 trillion in Federal outlays.

Therefore, programs totaling at least $1.4 trillion (or nearly 2/3) of annual outlays are subject to 

steps 3, 4, and 5 stated above. The results of these efforts were reported in both agency FY 2004

PARs and a recent report from OMB, “Improving the Accuracy and Integrity of Federal 

Payments.” 

 

The OMB report provides the clearest picture policy-makers and Federal agency managers have 

ever had on the extent of improper payments and the critical challenges faced in eliminating 

them. Notable findings from the report include: 

• Federal agencies were able to establish improper payment rates (and amounts) for 

programs that account for more than 80% of risk susceptible dollars. Specifically, 

of the $1.4 trillion in risk susceptible outlays, improper payment amounts (and 

rates) are reported on $1.2 trillion of those outlays. In a small number of risk 

susceptible programs, the absence of an improper payment amount in FY 2004 

reporting is the result of measurement challenges as well as time and resource 

constraints that will be resolved in future reporting years. 

• Agencies reported a total of $45.1 billion in improper payments in FY 2004, which 

represents a 3.9% improper payment rate. This estimated total compares to the 

previously published estimate of $35 billion in annual improper payments based on 

FY 2001 data. The increase in the estimate of $10.1 billion is explained mostly by 

improved error detection in Medicare, where reported improper payment dollars 

have increased by $9.6 billion since 2001. Notably, for all Federal programs that 

measured improper payments, other than Medicare, the government-wide improper 

payment rate is 2.7%. 

• Approximately 92% of improper payments are overpayments. 

12 Federal Financial Management Report (2005) 
• Seven programs alone account for approximately 95% of the improper payments 

reported in FY 2004: Medicare ($21.7 billion); Earned Income Tax Credit ($8.7 

billion - $10.6 billion); Unemployment Insurance ($3.9 billion); Supplemental 

Security Income ($2.6 billion); Old Age and Survivors’ and Disability Insurance 

($1.7 billion); Public Housing/Rental Assistance ($1.7 billion); and Food Stamps 

($1.6 billion). 

• Several agencies achieved significant accomplishments in reducing improper 

payments between FY 2003 and 2004. For example, the Department of Housing 

and Urban Development lowered its agency-wide improper payment amount by 

approximately $1.6 billion since FY 2000; the Social Security Administration 

reduced Supplemental Security Income improper payments by more than $100 

million since FY 2003; and the Department of Labor lowered improper payments in 

the Federal Employee Compensation Act program by $12 million since FY 2003. 

With the baseline now in place, and the tools of the IPIA and the PMA in effect, the Federal 

Government is in a strong position to continue its efforts toward eliminating improper payments 

government-wide. The Administration will utilize these tools to ensure that agencies are 

prioritizing resources so that corrective action plans are thoughtfully developed and successfully 

carried out for critical risk susceptible programs. Increased attention and resources will be 

dedicated to achieving reduction targets in the seven critical programs that make up 95% of the

improper payments total. Moreover, the Administration will continue efforts to ensure that 

agencies report an improper payment measurement for all risk susceptible programs on an annual 

basis. 

Strengthening Control over Federal Charge Cards 

The Federal Government sponsors more than 2.5 million credit cards to use in purchasing goods 

and services, or for employees when traveling on official government business. These 

transactions translate into $16.5 billion dollars spent through the use of purchase cards alone in 

FY 2003. 

Starting in January 2003, OMB has required quarterly purchase and travel card reporting from 

executive branch agencies. As a direct result of this action, performance has continued to 

improve. For instance, travel card delinquency remains at historically low levels, and the 

number of active purchase and travel card accounts are more aligned with agency mission 

requirements. In addition, since on-time payment performance has improved, the amount of

rebates has correspondingly increased. 

Building on these positive trends, the Administration plans to issue new guidance that provides 

requirements and best practice suggestions for improving charge card management. This 

guidance will consolidate and update all existing charge card requirements, as well as provide 

additional guidelines on emerging areas such as credit worthiness, split disbursement and salary 

offset for travel card debt, and strategic buying. The guidance, a collaboration of work from

Federal Government representatives, is expected to be released in the first half of 2005. 

Federal Financial Management Report (2005) 13 
Recovery Auditing 

The Defense Authorization Act for Fiscal Year 2002, Section 831 (“Recovery Auditing Act”), 

requires OMB to submit a report to Congress on recovery audit efforts at executive agencies. 

As instructed by the Recovery Auditing Act, OMB issued guidance through a memorandum (M03-07) to the heads of executive departments and agencies in January of 2003. This guidance 

was intended to assist agencies to successfully implement recovery auditing and recovery 

activity as part of an overall program of effective internal control over contract payments. As

part of this guidance, all executive branch agencies that award $500 million or more in contracts

annually were originally mandated to report for three consecutive years beginning not later than 

December 31, 2004, on their efforts in this area. However, in order to consolidate agency

financial reporting, OMB has moved these three deadlines to the PAR reporting timeframe of

November 15, 2004, 2005, and 2006, respectively. 

Early accomplishments include: 

• A general description and evaluation of the steps taken to carry out a recovery 

auditing program;

• The total cost of the agency’s recovery auditing program with an identification of

the costs of the agency’s recovery audit program activities (agency salaries and 

expenses) and contracted recovery audit services (amounts paid and payable to 

recovery audit contractors); 

• The total amount of payment errors identified under the recovery auditing program, 

the total amount subsequently deemed not recoverable, the total amount recovered,

and the total amount outstanding pending final resolution or collection. Report 

separate totals from amounts attributable to internal agency activities and to

recovery audit contractors; 

• A general description and evaluation of any management improvement program 

carried out pursuant to the Act; and 

• A description of the classes of contracts that the agency determined, under the Act,

would not be within the scope of recovery audits and activities. 

With the benefit of the information in the PAR, OMB will issue its report on recovery audit 

efforts to Congress following receipt and review of the agency PARs submitted in November. 

14 Federal Financial Management Report (2005) 
Core Financial Management Systems 

Over the past year, OMB worked with the CFO Council Financial Systems and E-Government

Committee to develop a new paradigm for meeting the Federal Government’s future needs for a

core financial management system. In collaboration with the CIOs of major agencies, this effort 

seeks to ensure effective and efficient investments in federal financial management systems. 

This work was centrally focused on minimizing redundant investments across the government 

while maximizing cutting-edge technology. Unlike the past, this new model will be built around 

centers of excellence that will maintain state of the art functionality. Some agencies will serve as 

these centers of excellence, while other agencies may elect to be clients of those centers. In this 

way, we will not only ensure cutting-edge technology across the agencies, but we will do so with 

focused investments rather than the current practice of spending limited investment dollars 

across the government. 

Over the coming years, migration to this model is expected to take place as agencies face the 

need for expanded financial management systems capabilities. 

Federal Financial Management Report (2005) 15 
The Chief Financial Officers Council 

The Chief Financial Officers (CFO) Act of 1990 created the CFO Council as a mechanism for

advising and coordinating the activities of its member agencies on such matters as improved

quality of financial information, financial data and information standards, consolidation and 

modernization of financial systems, internal control, legislation affecting financial operations and 

organizations, and other financial management matters. 

The CFO Council consists of the CFOs and Deputy CFOs of the 24 major Federal departments 

and agencies covered by the CFO Act and is chaired by the OMB Deputy Director for

Management. Other members include the OMB Controller and the Fiscal Assistant Secretary of 

the Treasury. The CFOs of the Executive Office of the President and the Corporation for 

National and Community Service also participate in the efforts of the CFO Council. 

CFO Act Agencies

• Department of Agriculture 

• Department of Commerce 

• Department of Defense 

• Department of Education 

• Department of Energy 

• Department of Health and Human Services 

• Department of Homeland Security* 

• Department of Housing and Urban Development 

• Department of the Interior 

• Department of Justice 

• Department of Labor 

• Department of State 

• Department of Transportation 

• Department of the Treasury 

• Department of Veterans Affairs 

• Agency for International Development 

• Environmental Protection 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 

* The Department of Homeland Security became a CFO Act agency under P.L. 108-330, which was enacted on

October 4, 2004. 

16 Federal Financial Management Report (2005) 
CFO Council Committees 

The CFO Council accomplishes its goals through its committee structure, which was recently 

restructured to better align with emerging issues and the needs of the federal financial 

community. In general, the committees serve to reinforce the President’s Management Agenda 

and to assist the agency CFOs. 

The following is a description of each committee, its recent accomplishments, and its plans for 

the future. Please note that a new committee – the Grants Governance Committee – was recently 

created to oversee and coordinate the implementation of Public Law 106-107 (grants 

streamlining) and two E-Gov initiatives (Grants.gov and the Grants Management Line of

Business). 

Best Practices 

Co-Chair: Christopher B. Burnham, Assistant Secretary and Chief Financial Officer, Department

of State 

In FY 2004, the Best Practices Committee advanced its primary objective of supporting the CFO 

Council’s ability to resolve common financial management and business process challenges 

across federal agencies through exposure to new ideas and strategies from “best practice” 

organizations and alternative perspectives of government and industry leaders. 

The ultimate goal of the committee is to find the very best of government and the private sector 

and apply it to the stewardship of the departments and funds entrusted to the government by the 

American people. The overall focus is governance issues with particular emphasis on 

strengthening internal controls and management controls. 

The Best Practices Committee Charter, which was updated in April 2004, outlines the focus of 

the committee and the essential elements required to accomplish the President’s vision for a 

Federal Government that is: 

 

• Results-oriented; 

• Market-based; and 

• Citizen-centered. 

The committee has recently hosted guest speakers on the following topics: 

• Internal Control/Best Practices. The committee sponsored two speakers from 

KPMG to discuss provisions of the Act and “best practices” for potential agency

implementation in the future. Specifically, the focus was on the importance of

certifying financial statements, internal control over financial reporting in periodic 

reports filed with the SEC (section 302), annually assessing and reporting on internal 

controls (section 404), and the requirement for auditors to provide an attestation 

Federal Financial Management Report (2005) 17 
report on management’s annual assessment. The challenge, according to KPMG, is 

to design and implement an effective, efficient and sustainable compliance program

for Sarbanes-Oxley. 

• Performance Management Metrics/Enterprise Financial Management Systems. The

committee sponsored a speaker from IBM to discuss its success in turning the 

corporation from dependence on multiple disparate systems to a more productive 

streamlined process, which now provides more reliable information for decision

makers. For example, the company was able to complete many different

consolidations: 16,000 software programs were decreased to less than 6,000; 155 

data centers were cut to 12; 21 private networks were reduced to one; 128 different 

Chief Information Officer (CIO) positions were consolidated into one; and hundreds 

of personal-computer configurations were distilled into four. IBM attributes its

success to a strong re-organization and focus on a common worldwide planning 

system, single worldwide consolidation system, common geographic mega-centers,

and a single worldwide financial information warehouse. 

• Human Resource Management. In December of 2004, the committee sponsored 

presentations to the Council on timely human capital issues. Watson Wyatt 

Worldwide addressed “Five Best Practices to Recruit and Retain Talent,” with a 

presentation of case studies illustrating methods federal agencies may adopt to 

attract and hire the best financial management personnel in an ever-more competitive 

marketplace. Additionally, the Gallup Organization shared information on

“Improving Performance in the Federal Workplace” with a discussion of maximizing 

employee engagement and methods to improve employee candidate selection and 

management focus. 

In the coming year, the committee will focus on areas identified through a previous survey of the 

CFO Act agencies and other areas identified by the committee, including the following: 

1. Enterprise Financial Management Systems and Implementation Experiences; 

2. Shared Services and Competitive Sourcing Opportunities; 

3. Internal Controls and Sarbanes-Oxley Act Implementation; 

4. Financial Statement Reporting Improvements; 

5. Federal Financial Management Human Resources; 

6. New CFO and Deputy CFO Orientation; and 

7. Improved Best Practices Website. 

In FY 2005, the committee will continue to arrange for guest speakers on best practices topics as 

dictated by current issues or as requested by CFO Council members. The committee also plans 

to refresh its survey of CFO Council members to meet the demand and expectations for best 

practice areas of primary interest to the Council. 

18 Federal Financial Management Report (2005) 
Financial Management Policies and Practices 

Chair: James L. Taylor, Deputy Chief Financial Officer, Department of Commerce 

Since its inception in early FY 2004, the Financial Management Policies and Practices 

Committee has been comprised of representatives from Federal agencies who work

collaboratively to identify and address emerging issues to improve financial management in the 

Federal Government. 

The committee is structured around three subject areas: 

• Financial Policy – to address emerging issues that will ultimately improve financial 

management in the Federal Government. 

• Accounting Standards – to ensure CFO Council participation in the standard setting 

process by providing viewpoints on proposed Federal Accounting Standards 

Advisory Board (FASAB) Standards, Interpretations, Technical Bulletins, 

Technical Releases or Concepts. 

 

• Internal Control – to ensure coordination and consistency among internal control 

policies promulgated for executive departments and agencies. 

The committee has worked jointly with OMB to review existing internal control reporting,

identify necessary changes, and redraft OMB Circular A-123, Management’s Responsibility for 

Internal Control. The proposed changes will significantly improve the Federal Government’s 

ability to verify that effective control is in place. The committee has also provided to OMB input 

from the CFO community on financial reporting issues before the FASAB. 

Over the next five years, the Committee will continue to: 

• Identify and address emerging issues in financial management; 

• Actively participate in the accounting standard-setting process; and 

• Develop implementation guidance to conduct management’s assessment of the 

effectiveness of internal control over financial reporting. 

Financial Reporting Acceleration 

Chair: Donald Hammond, Fiscal Assistant Secretary, Department of the Treasury 

The mission of the Financial Reporting Acceleration Committee is to help agencies identify and 

eliminate common barriers to issuing their PARs, including the reporting of their audited 

financial statements by November 15. Accelerating these agency submissions facilitates the 

preparation and issuance of the consolidated government-wide financial statements by December 

15, as occurred this past year. FY 2005 will be the fourth year of operation for this committee. 

Federal Financial Management Report (2005) 19 
The Financial Reporting Acceleration Committee strives to help all agencies “get to green” on 

the Administration’s scorecard for the Improved Financial Performance initiative of the PMA. 

Timely financial information is essential to better program management and more effective 

stewardship of the nation’s resources. The committee is committed to helping agencies 

accelerate their annual reporting processes, but provides the greatest value by increasing agency 

awareness of common problems and their solutions, providing a forum for their discussion and 

resolution, and providing a key interface with the audit community on areas of mutual interest. 

While helping agencies accelerate their reporting processes remains the short-term focus, the 

committee realizes that the ultimate benefit will be facilitating the use of this information in 

agency management decisions. 

This past year, the committee focused on sharing best practices, developing common solutions, 

and reaching a common understanding of issues among agencies and their auditors. Its scope

extends beyond just agency financial reporting to government-wide reporting issues and 

budgetary reporting. As such, the committee continued to add value to the acceleration effort by 

providing additional best practices and lessons learned forums to facilitate ongoing acceleration,

and identify ways to help agencies improve process efficiency. Increased efficiency enables

organizations to spend less time on preparation and more time on analysis and use of the 

information. The committee also focused its energies on identifying issues of reporting 

consistency in both interagency and external reporting. This work will establish the foundation 

for our efforts in coming year. 

As part of its collaborative theme, the committee this year held a joint meeting with senior OMB

budgetary reporting officials to begin the discussion of better synchronizing financial and 

budgetary reporting. The combined active participation by both the CFO and audit communities 

continues to add significant value to these sessions. 

Given the tremendous success in accelerated reporting in FY 2004 (with 22 of 24 CFO Act

agencies meeting the November 15 deadline and the government-wide report being issued on 

December 15), the committee is still finalizing its agenda for the next fiscal year. However, that 

agenda is certain to include the following two areas functioning as a forum to share best practices

and identify and resolve issues: 

1. Continue to identify and resolve agency reporting issues that involve central agency 

(e.g., OMB, Treasury) financial reporting requirements (e.g., government-wide

financial reporting, Federal Agencies Centralized Trial Balance System II) and

agency financial and budgetary reporting processes. Currently, agencies report 

financial data in a wide range of formats. While these varying formats all purport to

ultimately convey the same or similar information, timing and source differences can

often yield inconsistencies and differences that must be reconciled. Such

inconsistencies pose a challenge for analysts and auditors, and complicate attempts

to provide accurate financial management information from a government-wide

perspective. Examples of government-wide reporting include the Financial Report 

of the United States Government and the President’s Budget. Of particular 

importance are agency efforts to reconcile and resolve the remaining

intragovernmental transaction differences. 

20 Federal Financial Management Report (2005) 
2. Promote the use of accelerated financial information in day-to-day program and

agency management. Accelerating agency and government-wide financial reporting

is only part of the goal. Agencies must also leverage the availability of accelerated 

information to provide management with more current information to support 

decision-making; otherwise, the benefits of acceleration will be rendered superficial.

Through the use of surveys and roundtable discussions, the Committee plans to help 

agencies both produce financial information more expeditiously and to find ways to 

make better use of that information. 

The committee believes that its greatest value to federal financial management is to provide 

forums to efficiently share the best practices and lessons learned of all parties on the issues 

critical to effective financial reporting. Ultimately, we will know we are successful when agency 

and government-wide financial reporting processes gain in efficiency, an optimal alignment of 

budgetary and financial reporting occurs and the members themselves find a lack of issues to 

consider. 

Because the goal of the committee is to realize results and benefits in the short term, the

Financial Reporting Acceleration Committee does not prepare a long-term plan. However, in 

light of the FY 2004 reporting accomplishments, the committee is refocusing its efforts on better 

reporting, with less emphasis on acceleration. The ultimate measure of success will be achieved 

when the efforts of the committee are no longer needed. 

Financial Systems and E-Government 

Chair: Mark Carney, Deputy Chief Financial Officer, Department of Education 

Over the past year, the Financial Systems and E-Government Committee has actively helped to 

improve federal financial systems and reporting. The committee championed systems that 

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

Federal Government and provide accountability to its taxpayers. The committee also sought to

demonstrate and promote standardization of financial data and the elimination of redundant 

federal financial systems. 

This past year, the committee participated in a number of key initiatives designed to transform 

the way the Federal Government as an enterprise deploys and uses information technology (IT).

The committee also assisted OMB in aligning the efforts of the CFO community with the 

broader government-wide technology initiatives. 

During FY 2004, the committee assisted with efforts to refine the newly-introduced Federal 

Framework for Financial Management, which places core financial systems requirements into a 

much broader context. The committee also served as a pivotal “straw man” in updating the 2005 

mandatory and value-added system requirements for core systems. 

Federal Financial Management Report (2005) 21 
The committee has also participated in the “Line of Business Initiative” for financial 

management and back office grants management systems. The initial goal of this effort is to

develop common solutions and target architectures for a line of business that considers business

processes, technology, and data. A major initiative to identify opportunities to standardize 

agency business processes was launched in support of the financial line of business. The 

majority of this work is expected to be completed in 2005. 

Over the past fiscal year, the committee also promoted the alignment of twenty-four “egovernment” initiatives with the acquisition and IT communities. Expectations and needed 

commitments by the CFO community were defined to effectively implement these initiatives. 

The committee continues to encourage crosscutting e-Government initiatives, such as e-Grants,

e-Payroll, e-Travel, the Integrated Acquisition Environment, and the further refinement of the 

Federal Enterprise Architecture. 

Grants Governance 

Co-Chair: Thomas Cooley, Director, Office of Budget, Finance and Award Management and

Chief Financial Officer, National Science Foundation 

Co-Chair: Susan J. Grant, Director, Office of Management, Budget and Evaluation and Chief 

Financial Officer, Department of Energy 

The Grants Governance Committee was established in the first quarter of FY 2005. This 

committee will oversee and coordinate the work of three grants management initiatives: 

1. The implementation of grants streamlining efforts under P.L. 106-107, the Federal 

Financial Assistance Management Improvement Act of 1999; 

2. Grants.gov (E-Gov initiative), which creates a single portal of FIND and APPLY 

for the public; and 

 

3. Grants Management Line of Business project (E-Gov initiative) that establishes a 

consortia to provide agency back office grants management system services. 

This committee remains in the early stages of its existence and will be developing its priorities in

the near future. 

22 Federal Financial Management Report (2005) 
Improper Payments 

Chair: Clarence Crawford, Associate Director for Management and Chief Financial Officer,

Office of Personnel Management 

Initially chartered in November of 2001, the Improper Payments Committee continues to assist 

agencies in identifying and reducing improper payments within their programs and activities. In

its efforts, the committee works closely with the Inspector General (IG) community through the 

Improper Payments Joint Working Group. 

In FY 2004, the first year that agencies were required to report their compliance with the 

recently-enacted Improper Payments Information Act (IPIA) of 2002, the Committee served as a 

venue for assisting the agencies to better understand the requirements of the Act and OMB

guidance. As part of this effort, the Committee produced the following deliverables: 

• A standard format for reporting IPIA activities and data in the FY 2004 PAR; 

• Alternate guidance for large, complex programs that have significant challenges in

developing an annual statistical sampling to produce an annual improper payment 

rate and dollar amount; 

• Various methodologies for sampling payments below the primary grantee level; 

• A joint government-private sector Industry Day, which has served as an initial step 

toward finding private sector solutions to overarching improper payment

measurement challenges across government; and 

• A forum for sharing best practices and common challenges to provide agencies with

proven ways to accomplish the required legislative milestones, as well as resolving

common challenges that agencies face in implementing IPIA. 

In FY 2005 and beyond, the committee plans to: 

 

• Release several white papers addressing the subject of methodologies for sampling 

payments before the primary grantee level; 

• Expand efforts to identify cross-cutting solutions for improved measurement and 

reduction of improper payments; 

• Continue to seek alternative approaches for improved oversight of grant

transactions (an area that presents unique opportunities for cross-agency 

cooperation); and 

• Focus attention on the programs with the most significant amount of improper 

payments to ensure that the taxpayer receives the best possible return on

investment. 

Federal Financial Management Report (2005) 23 
Performance Measurement 

Chair: Linda Combs, Assistant Secretary for Budget and Programs and Chief Financial Officer, 

Department of Transportation 

The Performance Measurement Committee’s objective is to establish a performance 

measurement system based on key financial management indicators so that government

managers, Congress, and other stakeholders can assess the financial management health of both 

the Federal Government as a whole and each individual agency. To achieve this goal, the

committee is working to develop and refine: (i) a series of baseline and target financial metrics;

(ii) a rigorous, consistent, and systematic agency reporting process; and (iii) a centralized

system/database where data and results can be readily viewed by interested parties. 

Although officially formed in FY 2004, members of the CFO Council began working on a 

financial performance measurement system as early as FY 2002. Therefore, several key 

milestones have already been achieved. Specifically, agencies have been reporting on “Phase 1” 

indicators since March of 2003, while “Phase 2” indicators are near completion. This fiscal year,

the committee is well positioned to build on these accomplishments and work towards enhancing

the system. 

Key deliverables for FY 2005 include: 

• For Phase 1: defining government-wide and agency-specific targets, conducting a 

consistency assessment of agency reporting to ensure the validity and reliability of 

data, and making data and results available to the public through a web portal; 

• For Phase 2: completing definition of metrics and targets and commencing agency 

reporting; and 

• For Phase 3: identifying candidate metrics for future consideration. 

Once the database is operational, managers and other interested parties will have a powerful tool 

for assessing federal financial performance. For example, it is important to know whether the 

Federal Government and its individual agencies are meeting goals to reduce unreconciled 

balances, increase the use of electronic funds transfers, reduce delinquent accounts receivables, 

and reduce travel and purchase card delinquencies. Having the means to track performance on 

indicators such as these help to guide financial management reforms and target resources to areas 

where better stewardship of federal financial resources is truly needed. 

24 Federal Financial Management Report (2005) 
Five Year Outlook 

Over the next five fiscal years and beyond, we envision a Federal Government that, as a whole,

increasingly achieves first class financial management practices. OMB, the CFO Council, and 

the individual agency CFOs are leading the effort to improve the government’s financial 

management for the benefit of the American taxpayer. 

OFFM is positioned to assist agencies in improving their financial management practices, and it 

will continue to work closely with agency CFOs, agency IGs, and the CFO Council to strive

toward achieving results through improved financial performance and management. 

Each of the three branches of OFFM will continue to oversee efforts to: 

• Achieve unqualified opinions on all agency audited financial statements; 

• Receive the first-ever unqualified opinion on the government-wide audited financial 

statement; 

• Increase the regular use of timely and accurate financial information in day-to-day

decision making and in operational execution; 

• Reduce both auditor-reported and FMFIA material weaknesses; 

• Identify and eliminate improper payments in agency programs and activities; 

• Increase the number of sound and dependable financial systems; 

• Successfully implement new agency financial management systems where 

appropriate; 

• Strengthen asset management through the work of the Federal Real Property Council

and agency Senior Real Property Officers;

• Strengthen control over agency federal credit cards; and 

• Improve the internal control at federal agencies. 

Additionally, the newly-restructured CFO Council – chaired by the OMB Deputy Director for 

Management – is also well-positioned to appropriately address the emerging issues and needs of

the Federal financial community. Each of the seven CFO Council committees serves to assist the 

agency CFOs in key financial management issues and initiatives. 

In the next five fiscal years, we expect the CFO Council and its committees to, where

appropriate, identify issues and projects, provide a forum for discussion, survey agencies, 

develop strategies, share best practices, and make proposals. With regard to federal financial 

management systems, we anticipate the Financial Systems and E-Government Committee to 

continue to evaluate ways in which agencies, and the government as a whole, may improve 

systems integration and increase systems sharing. 

OFFM and the CFO Council look forward to continued efforts toward improved financial 

management and accountability throughout the Federal Government. 

Federal Financial Management Report (2005) 25 
26 Federal Financial Management Report (2005) 
APPENDICES

Federal Financial Management Report (2005) 27 
Appendix A: 

Summary of FY 2004 Financial Statement Results by 

Agencies and Selected Components

In FY 2004, agencies subject to the CFO Act were required to prepare annual audited financial 

statements. OMB also designates those individual agency components that must prepare audited 

financial statements. 

Fiscal Year 2004 Financial Statements 

Agency Type of Opinion 

CFO Act Agencies:

Department of Agriculture (USDA) Unqualified

Department of Commerce (DOC) Unqualified

Department of Defense (DOD) Disclaimer 

Department of Education (Education) Unqualified

Department of Energy (DOE) Unqualified

Department of Health and Human Services (HHS) Unqualified

Department of Homeland Security (DHS)* Disclaimer 

Department of Housing and Urban Development (HUD) Disclaimer 

Department of the Interior (DOI) Unqualified

Department of Labor (DOL) Unqualified

Department of Justice (DOJ) Disclaimer 

Department of State (State) Unqualified

Department of Transportation (DOT) Unqualified

Department of the Treasury (Treasury) Unqualified 

Department of Veterans Affairs (VA) Unqualified

Agency for International Development (USAID) Unqualified

Environmental Protection Agency (EPA) Unqualified

* Although the Department of Homeland Security (DHS) was not yet a CFO Act agency in FY 2004, DHS 

prepared and submitted audited financial statements. DHS became a CFO Act agency under P.L. 108-330, 

which was enacted on October 4, 2004.

28 Federal Financial Management Report (2005) 
General Services Administration (GSA) Unqualified

National Aeronautics and Space Administration (NASA) Disclaimer 

National Science Foundation (NSF) Unqualified

Nuclear Regulatory Commission (NRC) Unqualified

Office of Personnel Management (OPM) Unqualified

Small Business Administration (SBA) Qualified

Social Security Administration (SSA) Unqualified

Agency Components:

Food and Nutrition Service (USDA) N/A** 

Forest Service (USDA) Unqualified

Rural Development Mission Area (USDA) Unqualified

Department of Army General Funds (DOD) Disclaimer 

Department of Navy General Funds (DOD) Disclaimer 

Department of Air Force General Funds (DOD) Disclaimer 

Military Retirement Trust Fund (DOD) Unqualified

U.S. Army Corp of Engineers Civil Works Program (DOD) Disclaimer 

Department of Army Working Capital Fund (DOD) Disclaimer 

Department of Navy Working Capital Fund (DOD) Disclaimer 

Department of Air Force Working Capital Fund (DOD) Disclaimer 

Centers for Medicare and Medicaid Services (HHS) Unqualified

Federal Aviation Administration (DOT) Unqualified

Highway Trust Fund (DOT) Unqualified

Internal Revenue Service (Treasury) Unqualified

Civil Service Retirement and Disability Fund (OPM) Unqualified

Federal Employees Health Benefits Program (OPM) Unqualified

Federal Employees Life Insurance Program (OPM) Unqualified

** Agency component received an OMB waiver from audit for FY 2004. 

Federal Financial Management Report (2005) 29 
Appendix B: 

Material Weaknesses Reported by Auditors and Federal 

Managers’ Financial Integrity Act Tables 

OMB audit guidance requires auditors to disclose material weaknesses in internal control over 

financial reporting. The Federal Managers’ Financial Integrity Act (FMFIA) of 1982 and OMB 

guidance require the head of each executive agency to annually report whether there is 

reasonable assurance that the agency’s controls are achieving their intended objectives and 

whether the agency’s financial management systems conform to government-wide requirements. 

Agency heads are required to identify material weaknesses related to agency programs and 

operations (pursuant to Section 2 of FMFIA) and nonconformances with government-wide 

financial systems requirements (pursuant to Section 4 of FMFIA). Reporting of material 

weaknesses under FMFIA is not limited to weaknesses over financial reporting. 

The following tables include: the number of material weaknesses reported by independent 

auditors, the number of material weaknesses reported by agency heads under Section 2 of 

FMFIA, and the number of financial system nonconformances reported by agency heads under 

Section 4 of FMFIA. 

30 Federal Financial Management Report (2005) 
Fiscal Year 2004: 

Auditor-Reported Material Weaknesses 

Beginning New Resolved Consolidated Ending

Agriculture 312

Commerce 0 0

Defense 11 11

Education 0 0

Energy 0 0

HHS 2 2

Homeland 752 10

HUD 2 1 3

Interior 4 4

Justice 1 1 2

Labor 0 0

State 0 0

DOT 422 4

Treasury 211

VA 2 2

AID 313 1

EPA 0 0

GSA 110

NASA 4 1 1 4

NSF 0 0

NRC 0 1 1

OPM 0 1 1

SBA 2 2

SSA 0 0

Totals 48 13 10 1 50

Federal Financial Management Report (2005) 31 
Fiscal Year 2004: 

Section 2 Reporting in Agency FMFIA Reports 

Yes

Yes, with

Material

Weaknesses

No Beginning New Resolved Consolidated Reassessed Ending

Agriculture X 6 1 3 2

Commerce X 1

Defense X 40 17 11

Education X 0

Energy X 0

HHS X 0 3

Homeland X 12 9 12

HUD X 1

Interior X 10 1 7

Justice X 2 1

Labor X 0

State X 0

DOT X 3 1 1

Treasury X 7

VA X 1

AID X 2 1

EPA X 0

GSA X 0

NASA X 2 1

NSF X 0

NRC X 0

OPM X 0 1

SBA X 2

SSA X 0

 TOTAL 9 15 0 89 33 36 0 3 83

Number of Material Weaknesses

Adequate and Effective 

Management Controls*

2

1

46

0

0

3

9

1

4

1

0

0

3

7

1

1

0

0

1

0

0

1

2

0

*Agency head has provided overall assurance that the agency has adequate and effective management controls,

except for the material weaknesses identified. 

32 Federal Financial Management Report (2005) 
Fiscal Year 2004: 

Section 4 Reporting in Agency FMFIA (or Accountability) Reports 

Yes

Yes, with 

Non -

conformances*

No Beginning New Resolved Consolidated Reassessed Ending

Agriculture X 2 1 2

Commerce X 0

Defense X 1

Education X 0

Energy X 0 0

HHS X 1 1

Homeland X 3 2

HUD X 1

Interior X 1 1 0

Justice X 2

Labor X 0 0

State X 0

DOT X 1 2 1

Treasury X 2 1

VA X 2 1

AID X 1

EPA X 0 0

GSA X 3 3

NASA X 0 2

NSF X 0

NRC X 0 0

OPM X 0

SBA X 1

SSA X 0

 TOTAL 11 11 2 21 5 10 0 1 15

Systems Conform to

Requirements Number of Nonconformances

1

0

1

0

1

1

2

0

2

1

1

1

0

2

0

0

1

0

* Agency head has provided overall assurance that the agency has adequate and effective management controls,

except for the non-conformances identified. 

Federal Financial Management Report (2005) 33 
Appendix C: 

Government Corporations Required to Submit 

Audited Financial Statements to OMB 

Government Corporation FY 2004 Audit Opinion

Commodity Credit Corporation Unqualified

Community Development Financial Institutions Fund Unqualified

Corporation for National and Community Service Unqualified

Export-Import Bank of the United States Unqualified

Federal Crop Insurance Corporation Unqualified

Federal Deposit Insurance Corporation Not received1

Federal Home Loan Banks Not received1

Federal Housing Administration Fund Unqualified

Federal Prison Industries, Incorporated Unqualified

Financing Corporation Not received1

Government National Mortgage Association Unqualified

Millennium Challenge Corporation Not received

National Credit Union Administration Central Liquidity Facility Not received1

Overseas Private Investment Corporation Not received

Pension Benefit Guaranty Corporation Unqualified

Resolution Funding Corporation Not received1

Rural Telephone Bank Unqualified

Saint Lawrence Seaway Development Corporation Unqualified

Tennessee Valley Authority Unqualified

1

 Agency has a calendar year end; the financial statements were not due as of the printing of this report. 

34 Federal Financial Management Report (2005) 
Appendix D: 

Accountability for Tax Dollars Act Agencies Required to 

Submit Audited Financial Statements to OMB 

 

Agency FY 2004 Opinion

Advisory Council on Historic Preservation Extension 

African Development Fund Unqualified

Appalachian Regional Commission Unqualified

Architectural and Transportation Barriers Compliance Board Unqualified

Armed Forces Retirement Home Not received1

Barry Goldwater Scholarship and Excellence in Education Fund Waived

Broadcasting Board of Governors Disclaimer 

Christopher Columbus Fellowship Foundation Waived

Central Intelligence Agency Disclaimer 

Chemical Safety and Hazard Investigation Board Unqualified

Commission on Civil Rights Not received 

Commission of Fine Arts Waived

Commission on Ocean Policy Waived

Commission for the Preservation of America’s Heritage Abroad Waived

Committee for Purchase from People Who Are Blind or Severely Disabled Not received1

Commodities Futures Trading Commission Disclaimer 

Consumer Product Safety Commission Unqualified

Court Services and Offender Supervision Agency for DC Not received 

Defense Nuclear Facilities Safety Board Extension

Delta Regional Authority Extension 

Denali Commission Waived

Equal Employment Opportunity Commission Unqualified

Farm Credit Administration Unqualified

Farm Credit System Financial Assistance Corporation Not received2

Farm Credit System Insurance Corporation Not received2

Federal Communications Commission Qualified

Federal Election Commission Extension 

Federal Financial Institutions Examination Council Appraisal Subcommittee Not received 

Federal Housing Finance Board Unqualified

Federal Labor Relations Authority Not received1

Federal Mediation and Conciliation Service Unqualified

Federal Mine Safety and Health Review Commission Unqualified

Federal Retirement Thrift Investment Board Not received 

Federal Trade Commission Not received1

Harry S. Truman Scholarship Fund Waived

Institute of American Indian and Alaska Native Culture and Arts Development Not received 

Institute of Museum and Library Services Not received 

Inter-American Foundation Unqualified

James Madison Memorial Fellowship Foundation Not received1

Japan-U.S. Friendship Commission Waived

Marine Mammal Commission Waived

1

 Although no audit was performed, the agency did submit unaudited financial statements. 2

 Agency has a calendar year end; the financial statements were not due as of the printing of this report.

Federal Financial Management Report (2005) 35 
Agency FY 2004 Opinion

Merit Systems Protection Board Unqualified

Morris K. Udall Scholarship and Excellence in National Environmental Policy Foundation Extension

National Archives and Records Administration Qualified

National Capital Planning Commission Not received 

National Commission on Libraries and Information Science Waived

National Council on Disability Not received 

National Credit Union Administration Not received2

National Endowment for the Arts Unqualified

National Endowment for the Humanities Not received 

National Labor Relations Board Unqualified

National Mediation Board Unqualified

National Transportation Safety Board Unqualified

National Veterans Business Development Corporation Not received 

Nuclear Waste Technical Review Board Waived

Occupational Safety and Health Review Commission Unqualified

Office of Government Ethics Unqualified

Office of Navajo and Hopi Indian Relocation Commission Unqualified

Office of Special Counsel Not received1

Peace Corps Disclaimer 

Presidio Trust Unqualified

Railroad Retirement Board Unqualified

Securities and Exchange Commission Extension 

Selective Service System Extension 

Smithsonian Institution Not received

SI/John F. Kennedy Center for the Performing Arts Not received 

SI/National Gallery of Arts Not received1

SI/Woodrow Wilson International Center for Scholars Not received 

Trade and Development Agency Unqualified 

U.S. Court of Appeals for Veterans Claims Not received1

U.S. Holocaust Memorial Museum Unqualified 

U.S. Interagency Council on Homelessness Waived

U.S. International Trade Commission Unqualified

Vietnam Education Foundation Not received 

White House Commission on the National Moment of Remembrance Waived

36 Federal Financial Management Report (2005) 
Appendix E: 

Executive Branch Management Scorecard 

The Office of Management and Budget (OMB), in consultation with the agencies, professional 

associations, and academics, established Standards for Success for each government-wide 

initiative of the President’s Management Agenda. 

Each quarter, OMB grades each agency on its current status, as well as its progress, toward 

meeting the established standards. An agency’s status and progress are rated using the familiar

stoplight colors of red, yellow, and green. 

The following Executive Branch Management Scorecard shows the Current Status and Progress 

scores on the Improving Financial Performance initiative of the PMA. 

Federal Financial Management Report (2005) 37 
 Improved Financial Performance 

Explanation of Current Status Score 

Agency:

• Meets all Yellow Standards for Success; 

• Currently produces accurate financial 

information that is used by management

to inform decision-making and drive 

results in key areas of operations; AND

• Is implementing a plan to continuously

expand the scope of its routine data use 

to inform management decision-making 

in additional areas of operations. 

Agency:

• Receives an unqualified opinion on its 

audited annual financial statements; 

• Meets financial reporting deadlines; 

• Reports in its audited annual financial 

statements that its systems are in 

compliance with the Federal Financial 

Management Improvement Act;

• Has no chronic or significant AntiDeficiency Act Violations; 

• Has no material auditor-reported 

internal control weaknesses; 

• Has no material non-compliance with

laws or regulations; AND

• Has no material weaknesses or nonconformances reported under Section 

2 and Section 4 of the Federal

Managers’ Financial Integrity Act that 

impact the agency’s internal control 

over financial reporting or financial

systems. 

Agency:

• Receives an opinion other than

unqualified on its annual financial 

statements; 

• Does not meet financial reporting 

deadlines; 

• Cannot report in its audited annual

financial statements that its systems 

are in compliance with the Federal 

Financial Management

Improvement Act;

• Commits chronic or significant 

Anti-Deficiency Violations; 

• Has material auditor reported 

internal control weaknesses; 

• Is in material non-compliance with

laws or regulations; OR

• Has material weaknesses or nonconformances reported under 

Section 2 and Section 4 of the 

Federal Managers’ Financial

Integrity Act that impact the 

agency’s internal control over 

financial reporting or financial

systems. 

Explanation of Progress Score 

Green – Implementation is proceeding 

according to plans

Yellow – Slippage in implementation

schedule, quality of deliverables, or other 

issues requiring adjustments by agency in 

order to achieve initiative on a timely 

basis.

Red – Initiative in serious jeopardy. 

Unlikely to realize objectives without 

significant management intervention

38 Federal Financial Management Report (2005) 
Federal Financial Management Report (2005) 39 
http://www.whitehouse.gov/omb/financial