United States General Accounting Office 

GAO Report to Congressional Committees 

September 2003 FINANCIAL 

MANAGEMENT 

Sustained Efforts 

Needed to Achieve 

FFMIA Accountability 

GAO-03-1062


a
Highlights of GAO-03-1062, a report to the 

Senate Committee on Governmental 

Affairs and the House Committee on 

Government Reform 

The ability to produce the data 

needed to efficiently and effectively 

manage the day-to-day operations 

of the federal government and 

provide accountability to taxpayers 

has been a long-standing challenge 

to most federal agencies. To help 

address this challenge, the Federal 

Financial Management 

Improvement Act of 1996 (FFMIA) 

requires the 24 Chief Financial 

Officers Act agencies to implement 

and maintain financial management 

systems that comply substantially 

with (1) federal financial 

management systems 

requirements, (2) federal 

accounting standards, and (3) the 

U.S. Government Standard General 

Ledger (SGL). FFMIA also requires 

GAO to report annually on the 

implementation of the act. 

GAO reaffirms its prior 

recommendations that OMB revise 

its FFMIA audit testing and 

reporting guidance to: 

(1) include a statement of 

positive assurance when 

reporting an agency’s systems 

to be in substantial 

compliance with FFMIA, and 

(2) clarify the definition of 

“substantial compliance” to 

promote consistent reporting 

of FFMIA compliance. 

As in the past, OMB did not agree 

with our view on the need for 

auditors to provide positive 

assurance on FFMIA, but agreed to 

consider clarifying the definition of 

“substantial compliance” in future 

policy and guidance updates. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1062. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sally 

Thompson (202)-512-9450 or 

thompsons@gao.gov. 

September 2003 

FINANCIAL MANAGEMENT 

Sustained Efforts Needed to Achieve 

FFMIA Accountability 

Federal agencies are making progress to address financial management 

systems weaknesses. At the same time, for fiscal year 2002, 19 of the 24 CFO 

Act agency inspectors general or their contract auditors reported that these 

agencies’ financial management systems did not comply with FFMIA. The 

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

agency management does not yet have the full range of reliable information 

needed for accountability, performance reporting, and decision making. As 

shown in the chart below, audit reports highlight six recurring problems that 

have been consistently reported for those agencies whose auditors reported 

noncompliant systems. 

Problems Reported by Auditors for Fiscal Years 2000 through 2002 

Following OMB’s reporting guidance, auditors for 5 agencies provided 

negative assurance on agency systems’ FFMIA compliance for fiscal year 

2002. This means that nothing came to their attention indicating that these 

agencies’ financial management systems did not meet FFMIA requirements. 

GAO does not believe that this type of reporting is sufficient for reporting 

under the act. FFMIA requires the auditor to state “whether” the agency 

systems are in substantial compliance, which in our view, requires the 

auditor to perform sufficient audit tests to be able to provide positive 

assurance. 

Agencies have recognized the seriousness of their financial systems 

weaknesses, and as of September 30, 2002, 17 of the 24 CFO Act agencies 

were planning to or were implementing a new core financial system. It is 

imperative that agencies adopt leading practices, such as top management 

commitment and business process reengineering, to ensure successful 

systems implementation. 

The JFMIP Principals, congressional oversight, and the President’s 

Management Agenda are driving governmentwide initiatives to transform 

federal financial management. Modernization of agency financial systems 

and continued attention is needed to sustain momentum on these initiatives. 
Contents


Letter


Results in Brief 


Background 


Scope and Methodology 


Continued Systems Weaknesses Impair Financial Management 


Accountability 

Agency Efforts to Implement New Financial Systems 

Successful Implementation of Financial Management Systems Is 

Key for Improved Financial Reporting 

Status of Governmentwide Financial Management Improvement 

Efforts 

Conclusions 

Agency Comments and Our Evaluation 

1 

2 

8 

11 

13 

34 

37 

42 

52 

54 

Appendixes 

Appendix I: 

Appendix II: 

Appendix III: 

Appendix IV: 

Appendix V: 

Appendix VI: 

Appendix VII: 

Requirements and Standards Supporting Federal Financial 

Management 

Publications in the Federal Financial Management Systems 

Requirements Series 

Statements of Federal Financial Accounting Concepts, 

Statements of Federal Financial Accounting Standards, and 

Interpretations 

AAPC Technical Releases 

Checklists for Reviewing Systems under the Federal 

Financial Management Improvement Act 

Comments from the Office of Management and Budget 

GAO Contacts and Staff Acknowledgments 

GAO Contacts 

Acknowledgments 

58 

63 

64 

66 

67 

68 

70 

70 

70 

Table Table 1: Agency Status and Progress Scores for the Improved 

Financial Performance Initiative 52 

Figures Figure 1: Problems Reported by Auditors for Fiscal Years 2000 

through 2002 4 

Figure 2: Pyramid to Accountability and Useful Management 

Information 10 

Page i GAO-03-1062 FFMIA FY 2002 Results 
Contents 

Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 2000, 2001, 

and 2002 14 

Figure 4: Problems Reported by Auditors for Fiscal Years 2000 

through 2002 19 

Figure 5: Agency Target Dates for Implementation of Core 

Financial Systems as of September 30, 2002 36 

Figure 6: Agency Systems Architecture 59 

Abbreviations 

AAPC Accounting and Auditing Policy Committee


AID Agency for International Development


BPN Business Partner Network


CAP Commercial Activities Panel


CFO chief financial officer


CIM Corporate Information Management


COTS commercial off-the-shelf


DAFIS Departmental Accounting and Financial Information 


System 

DHS Department of Homeland Security 

DOD Department of Defense 

DOL Department of Labor 

DOT Department of Transportation 

E-gov Electronic Government Initiative 

EPA Environmental Protection Agency 

FAA Federal Aviation Administration 

FAM Financial Audit Manual 

FASAB Federal Accounting Standards Advisory Board 

FEA Federal Enterprise Architecture 

FEAPMO Federal Enterprise Architecture Program Management 

Office 

FEMA Federal Emergency Management Agency 

FFMIA Federal Financial Management Improvement Act 

FFMSR Federal Financial Management Systems Requirements 

FHA Federal Housing Administration 

FIA Federal Managers' Financial Integrity Act 

FISMA Federal Information Security Management Act 

FMIS Fiscal Management Information System 

FTA Federal Transit Administration 

GAAP generally accepted accounting principles 

Page ii GAO-03-1062 FFMIA FY 2002 Results 
Contents 

GISRA Government Information Security Reform 


GSA General Services Administration


HHS Department of Health and Human Services


HUD Department of Housing and Urban Development


HUDCAPS Department of Housing and Urban Development Central 


Accounting and Program System 

IAE Integrated Acquisition Environment 

IFMP Integrated Financial Management Program 

IG inspector general 

IT information technology 

JFMIP Joint Financial Management Improvement Program 

NASA National Aeronautics and Space Administration 

NRC Nuclear Regulatory Commission 

NSF National Science Foundation 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

PART Program Assessment Rating Tool 

PCIE President's Council on Integrity and Efficiency 

PMA President's Management Agenda 

PMO Program Management Office 

SBA Small Business Administration 

SFFAC Statement of Federal Financial Accounting Concepts 

SFFAS Statement of Federal Financial Accounting Standards 

SGL U.S. Government Standard General Ledger 

SSA Social Security Administration 

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Page iii GAO-03-1062 FFMIA FY 2002 Results 
A Comptroller General 

of the United States 

United States General Accounting Office 

Washington, D.C. 20548 

September 30, 2003


The Honorable Susan M. Collins


Chairman


The Honorable Joseph I. Lieberman


Ranking Minority Member


Committee on Governmental Affairs


United States Senate


The Honorable Tom Davis


Chairman


The Honorable Henry A. Waxman


Ranking Minority Member


Committee on Government Reform


House of Representatives


The ability to produce the data needed to efficiently and effectively manage 


the day-to-day operations of the federal government and provide 


accountability to taxpayers and the Congress has been a long-standing 


challenge at most federal agencies. To address this challenge, the Chief 


Financial Officers (CFO) Act of 19901

 calls for the modernization of 


financial management systems, so that the systematic measurement of 


performance, the development of cost information, and the integration of


program, budget, and financial information for management reporting can 


be achieved. 


The Federal Financial Management Improvement Act of 1996 (FFMIA)2


builds on the foundation laid by the CFO Act by emphasizing the need for 


agencies to have systems that can generate reliable, useful, and timely


information with which to make fully informed decisions and to ensure 


accountability on an ongoing basis. FFMIA requires the major departments


1

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

2

Title VIII of Public Law 104-208 is entitled the Federal Financial Management Improvement 

Act of 1996. 

Page 1 GAO-03-1062 FFMIA FY 2002 Results 
and agencies covered by the CFO Act

3

 to implement and maintain financial 

management systems that comply substantially with (1) federal financial 

management systems requirements, (2) applicable federal accounting 

standards,4

 and (3) the U.S. Government Standard General Ledger (SGL)5 

at the transaction level. FFMIA also requires auditors to report in their 

CFO Act financial statement audit reports whether the agencies’ financial 

management systems substantially comply with FFMIA’s systems 

requirements. We are required to report annually on the implementation of 

the act. This, our seventh annual report, discusses (1) auditors’ FFMIA 

assessments for fiscal year 2002 and the problems, reported by the 

auditors, that continue to impair agency accountability, (2) agency efforts 

to implement financial systems, (3) key characteristics of successful 

systems implementation efforts and the challenges federal agencies face, 

and (4) the status of federal financial management improvement efforts. 

Results in Brief	 Federal agencies are making progress to address financial management 

systems weaknesses. At the same time, the results of the fiscal year 2002 

FFMIA assessments performed and reported by the 24 CFO Act agency 

inspectors general (IG) or their contract auditors show that most agencies’ 

financial management systems continue to have shortcomings. While 

much more severe at some agencies than others, the nature and 

seriousness of the reported problems indicate that, generally, agency 

management does not yet have the full range of reliable information needed 

for accountability, performance reporting, and decision making. 

3

There were initially 24 CFO Act agencies (see footnote 1 above). The Federal Emergency 

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

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

With this transfer, FEMA will no longer be required to prepare audited stand-alone financial 

statements under the CFO Act. We included FEMA in our review because FEMA was a CFO 

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

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

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

therefore is not subject to FFMIA. 

4

The American Institute of Certified Public Accountants recognizes the federal accounting 

standards promulgated by the Federal Accounting Standards Advisory Board (FASAB) as 

generally accepted accounting principles (GAAP). 

5

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

are to use in all their financial systems. 

Page 2 GAO-03-1062 FFMIA FY 2002 Results 
Auditors for 19 of the 24 CFO Act agencies reported that their agencies’ 

financial management systems did not comply substantially with one or 

more of the three FFMIA requirements for fiscal year 2002. Auditors’ 

assessments of financial systems’ compliance with FFMIA for fiscal years 

2001 and 2002 differed for three agencies. Auditors for the Environmental 

Protection Agency (EPA) and the National Science Foundation (NSF) 

reported that these agencies’ systems were in substantial compliance6

 for 

fiscal year 2002, a change from the fiscal year 2001 assessments. Auditors 

for the Department of Labor (DOL) concluded that the department’s 

systems were not in substantial compliance with the managerial cost 

standard and thus not in compliance with FFMIA—also a changed 

assessment from fiscal year 2001. 

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

reported to have noncompliant systems, we identified six continuing, 

primary problems that affect FFMIA compliance. As a result of these 

reported problems, most agencies’ financial management systems are not 

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

information. For example, agency financial management systems are 

required to produce information on the full cost of programs and projects. 

Currently, some agencies are only able to provide cost accounting 

information at a high level, but not that needed to evaluate programs and 

activities on their full costs and merits as envisioned by FFMIA. Agencies 

are experimenting with methods of accumulating and assigning costs to 

obtain the managerial cost information needed to enhance programs, 

improve processes, establish fees, develop budgets, prepare financial 

reports, make competitive sourcing decisions, and report on performance. 

6

Auditors for these two agencies provided negative assurance of FFMIA compliance, 

meaning that nothing came to their attention indicating that the financial management 

systems did not meet FFMIA requirements. 

Page 3 GAO-03-1062 FFMIA FY 2002 Results 
Figure 1: Problems Reported by Auditors for Fiscal Years 2000 through 2002 

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

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

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

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

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

nothing came to their attention during the course of their planned 

procedures indicating that these agencies’ financial management systems 

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

concept of negative assurance, which is the type of reporting specified in 

the Office of Management and Budget’s (OMB) auditing guidance, they may 

have gained an incorrect impression that these systems have been fully 

tested by the auditors and found to be substantially compliant. Because 

the act requires auditors to “report whether” agency systems are 

substantially compliant, we believe the auditor needs to provide positive 

assurance, which would be a definitive statement as to whether agency 

financial management systems substantially comply with FFMIA, as 

required under the statute. This is what we will do for the financial 

Page 4 GAO-03-1062 FFMIA FY 2002 Results 
statement audits we perform when reporting that an entity’s financial 

management systems were in substantial compliance. To provide positive 

assurance, auditors need to consider many other aspects of financial 

management systems than those applicable for the purposes of rendering 

an opinion on the financial statements. 

Across government, agencies have many efforts underway to implement or 

upgrade financial systems to alleviate long-standing problems in financial 

management. As of September 30, 2002, 17 agencies7

 advised us that they 

were planning to or were in the process of implementing a new core 

financial system.8 Target implementation dates for 16 of these 17 agencies 

ranged from fiscal year 2003 to fiscal year 2008. The remaining agency, the 

Department of Defense (DOD), had not yet determined its target date for 

full implementation. Under OMB Circular A-127, agencies are required to 

purchase commercial off-the-shelf (COTS) packages sold by vendors 

whose core financial systems software have been certified.9 Some of the 

key factors that affect the FFMIA compliance of an implemented COTS 

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

whether any customizations or modifications10 have been made to the 

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

systems. 

Successful implementation efforts of financial management systems are 

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

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

7

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

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

8

Core financial systems, as defined by the Joint Financial Management Improvement 

Program (JFMIP), include managing general ledger, funding, payments, receivables, and 

certain basic cost functions. Core financial systems receive data from other financial and 

feeder systems—such as acquisition, grant, and human resource and payroll systems—as 

well as from direct user input, and provide data for financial performance measurement and 

analysis and for financial statement preparation. 

9

The Program Management Office, managed by the Executive Director of the JFMIP, with 

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

they meet certain federal financial management system requirements for core financial 

systems. 

10Customization is the process of setting parameters within an application to make it 

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

supported by vendors in subsequent upgrades. Modification is the process of writing or 

changing code and modifications are not supported by vendors in subsequent upgrades. 

Page 5 GAO-03-1062 FFMIA FY 2002 Results 
others: (1) involvement by the users, (2) support of executive management, 

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

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

and (6) realistic expectations. Conversely, financial systems 

implementation projects are often hindered by the lack of executive 

support, poor communication between managers and stakeholders, poor 

estimation and planning, and poor documentation and updating of user 

requirements. 

Agencies who have or are implementing new financial management 

systems have faced some of the challenges mentioned above. For example, 

the National Aeronautics and Space Administration (NASA) began its 

Integrated Financial Management Program (IFMP) in April 2000, its third 

attempt in recent years at modernizing financial management processes 

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

a total of 12 years and a reported $180 million in spending. We recently 

reported11 that NASA is not following key best practices for acquiring and 

implementing the IFMP and therefore faces increased risk of a third 

unsuccessful attempt to transform its financial management and business 

operations. DOD has begun and suspended a number of departmentwide 

reform initiatives to improve its financial operations as well as other key 

business support processes. While these initiatives produced some 

incremental improvements, they did not result in the fundamental reform 

necessary to resolve these long-standing management challenges. Our 

recent reports12 highlight investment management and project weaknesses 

at DOD. As we recently reported,13 Secretary of Defense Rumsfeld has 

initiated a program to transform DOD’s business processes, including 

establishing a new management structure to oversee reform efforts. While 

DOD has already taken a number of positive actions, it has not yet 

11U.S. General Accounting Office, Business Modernization: Improvements Needed in 

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

(Washington, D.C.: Apr. 30, 2003). 

12U.S. General Accounting Office, DOD Business Systems Modernization: Continued 

Investment in Key Accounting Systems Needs to Be Justified, GAO-03-465 (Washington, 

D.C.: Mar. 28, 2003), and DOD Business Systems Modernization: Improvements to 

Enterprise Architecture Development and Implementation Efforts Needed, GAO-03-458 

(Washington, D.C.: Feb. 28, 2003). 

13U.S. General Accounting Office, Department of Defense: Status of Financial Management 

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

Page 6 GAO-03-1062 FFMIA FY 2002 Results 
developed an overarching plan tying key reform efforts together in an 

integrated program. 

Modern financial management systems are needed to produce reliable data 

for competitive sourcing and congressional decisions on the budget, as 

well as managing day-to-day operations. The JFMIP Principals,14 

congressional oversight, and the President’s Management Agenda (PMA) 

are the driving forces behind several governmentwide efforts now 

underway to improve federal financial management. For example, in fiscal 

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

meetings that focused on key financial management reform issues. The 

Congress has demonstrated leadership in improving federal financial 

management by enacting laws and through oversight hearings. The PMA, 

being implemented by the administration as an agenda for improving the 

management and performance of the federal government, targets the most 

apparent deficiencies where the opportunity to improve performance is the 

greatest. The PMA includes five crosscutting initiatives, which are 

(1) improved financial performance, (2) strategic human capital 

management, (3) competitive sourcing, (4) expanded electronic 

government, and (5) budget and performance integration. 

Several current governmentwide financial management improvement 

efforts are directly related to the PMA’s five crosscutting initiatives. For 

example, arising from the electronic government initiative (e-gov), OMB 

has established the Federal Enterprise Architecture Program Management 

Office (FEAPMO), which is developing a federal enterprise architecture to 

enable agencies to derive maximum benefit from applying information 

technology (IT) to their missions. These types of efforts, aside from 

systems enhancement, can also lead to positive cost reduction outcomes. 

Moreover, as part of the e-gov initiative, the number of government entities 

processing the federal civilian payroll is being reduced from 22 to 2 to 

standardize business processes and realize economies of scale. Related to 

PMA’s crosscutting initiative to integrate budget and performance 

information, the administration has introduced a formal assessment tool in 

its deliberations, the Program Assessment Rating Tool (PART) to use 

performance information more explicitly in formulating the federal budget. 

OMB, for PMA’s competitive sourcing initiative, recently released a revised 

Circular A-76, which is generally consistent with the principles and 

14The JFMIP Principals are the Secretary of the Treasury, the Directors of OMB and the 

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

Page 7 GAO-03-1062 FFMIA FY 2002 Results 
recommendations made by the Commercial Activities Panel (CAP). As we 

recently testified,15 implementation of the competitive sourcing initiative 

will be challenging for many agencies. The modernization of agency 

financial management systems is critical to the success of all of these 

initiatives. 

We reaffirm our prior recommendations16 aimed at enhancing OMB’s audit 

guidance related to FFMIA assessments. Specifically, we recommended 

that OMB (1) require agency auditors to provide a statement of positive 

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

compliance with FFMIA, and (2) further clarify the definition of 

“substantial compliance” to encourage consistent reporting. In 

commenting on a draft of this report, OMB agreed with our view that 

financial management success encompasses more than agencies receiving 

unqualified opinions on their financial statements. As in previous years, we 

and OMB have differing views on the level of audit assurance necessary for 

assessing compliance with FFMIA. We will continue to work with OMB on 

this issue. Our detailed evaluation of OMB’s comments can be found at the 

end of this letter. 

Background	 FFMIA and other financial management reform legislation have 

emphasized the importance of improving financial management across the 

federal government. The primary purpose of FFMIA is to ensure that 

agency financial management systems routinely generate timely, accurate, 

and useful information. With such information, government leaders will be 

better positioned to invest resources, reduce costs, oversee programs, and 

hold agency managers accountable for the way they run government 

programs. Financial management systems’ compliance with federal 

financial management systems requirements, applicable accounting 

standards, and the SGL are building blocks to help achieve these goals. 

15U.S. General Accounting Office, Competitive Sourcing: Implementation Will Be 

Challenging for Federal Agencies, GAO-03-1022T (Washington, D.C.: July 24, 2003). 

16U.S. General Accounting Office, Financial Management: FFMIA Implementation Critical 

for Federal Accountability, GAO-02-29 (Washington, D.C.: Oct. 1, 2001). 

Page 8 GAO-03-1062 FFMIA FY 2002 Results 
Beginning in 1990, the Congress has passed management reform legislation 

to improve the general and financial management of the federal 

government. As shown in figure 2, the combination of reforms ushered in 

by the (1) CFO Act of 1990, (2) Government Performance and Results Act 

of 1993, (3) Government Management Reform Act of 1994, (4) FFMIA, 

(5) Clinger-Cohen Act of 1996, and (6) Accountability of Tax Dollars Act of 

2002,

17 if successfully implemented, provides a basis for improving 

accountability of government programs and operations as well as routinely 

producing valuable cost and operating performance information. 

Figure 2 shows the three levels of the pyramid that result in the end goal, 

accountability and useful management information. The bottom level of 

the pyramid is the legislative framework that underpins the improvement 

of the general and financial management of the federal government. The 

second level shows the drivers that build on the legislative requirements 

and influence agency actions to meet these requirements. The three 

drivers are the (1) PMA, (2) congressional and other oversight, and (3) the 

activities of the JFMIP Principals. The third level of the pyramid represents 

the key success factors for accountability and meaningful management 

information—integrating core and feeder financial systems, producing 

reliable financial and performance data for reporting, and ensuring 

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

top of the pyramid, is accountability and meaningful management 

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

financial condition, and operating performance. 

17The Accountability of Tax Dollars Act of 2002 extends the requirement to prepare and 

submit audited financial statements to most executive agencies not subject to the CFO Act 

unless exempted by OMB. However, these agencies are not required to have systems that 

are compliant with FFMIA. 

Page 9 GAO-03-1062 FFMIA FY 2002 Results 
Figure 2: Pyramid to Accountability and Useful Management Information 

Accountability 

and useful 

management 

information 

End goal 

Key success 

factors 

Integrated 

systems 

Reliable 

financial and 

performance data 

for reporting 

Effective 

internal 

control 

PMA 

Drivers 

CFO 

Act 

Legislative 

framework 

Government 

Management 

Reform Act 

Accountability 

of Tax Dollars 

Act of 2002 

Congressional and 

other oversight 

JFMIP 

Principals 

FFMIA 

Government 

Performance and Results Act Clinger-Cohen 

Act 

OMB sets governmentwide financial management policies and 

requirements and currently has two sources of guidance related to FFMIA. 

First, OMB Bulletin No. 01-02, Audit Requirements for Federal Financial 

Statements, dated October 16, 2000, prescribes specific language auditors 

should use when reporting on an agency system’s substantial compliance 

with FFMIA. Specifically, this guidance calls for auditors to provide 

negative assurance when reporting on an agency system’s FFMIA 

compliance. Second, in a January 4, 2001, Memorandum, Revised 

Implementation Guidance for the Federal Financial Management 

Improvement Act, OMB provided guidance for agencies and auditors to use 

in assessing substantial compliance. The guidance describes the factors 

that should be considered in determining an agency’s systems compliance 

with FFMIA. In addition, examples are provided in the guidance as to the 

types of indicators that should be used as a basis in assessing whether an 

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

FFMIA requirements. The guidance also discusses the corrective action 

Source: GAO. 

FFMIA Guidance Issued by 

OMB 

Page 10 GAO-03-1062 FFMIA FY 2002 Results 
plans, to be developed by agency heads, for bringing their systems into 

compliance with FFMIA. 

Financial Audit Manual 

Section on FFMIA 

Relating to our recommendation18 that OMB develop specific procedures 

auditors should perform when assessing FFMIA compliance, we worked 

with representatives from the President’s Council on Integrity and 

Efficiency (PCIE) to develop a section for the joint GAO/PCIE Financial 

Audit Manual (FAM). This section, part of the FAM update issued in April 

2003, includes detailed audit steps for testing agency systems’ substantial 

compliance with FFMIA. The FAM guidance on FFMIA assessments 

recognizes that while financial statement audits offer some assurances 

regarding FFMIA compliance, auditors should design and implement 

additional testing to satisfy FFMIA criteria. For example, in performing 

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

financial management systems to process and summarize financial 

information that flows into agency financial statements. In contrast, 

FFMIA requires auditors to assess whether an agency’s financial 

management systems comply with system requirements. To do this, 

auditors need to consider whether agency systems provide complete, 

accurate, and timely information for managing day-to-day operations so 

that agency managers would have the necessary information to measure 

performance on an ongoing basis rather than just at year-end. 

Scope and 

Methodology 

We reviewed the fiscal year 2002 financial statement audit reports for the 

24 CFO Act agencies to identify the (1) auditors’ assessments of agency 

financial systems’ compliance, (2) problems that affect FFMIA compliance, 

and (3) agency management’s FFMIA assessments. While we did not 

independently verify or test the data in the agency audit reports or make 

efforts to validate auditor conclusions regarding agency systems’ 

compliance with FFMIA’s requirements, our prior experience with these 

auditors and our review of their reports provided the basis to determine the 

sufficiency and relevancy of evidence provided in these documents. Based 

on the audit reports, we identified problems reported by the auditors that 

affect agency systems’ compliance with FFMIA. The problems identified in 

these reports are consistent with long-standing financial management 

weaknesses that we have reported based on our work at agencies such as 

18GAO-02-29. 

Page 11 GAO-03-1062 FFMIA FY 2002 Results 
DOD, NASA, and the Departments of Agriculture, Education, and Housing 

and Urban Development (HUD). However, we caution that the occurrence 

of problems in a particular category may be even greater than auditors’ 

reports of FFMIA noncompliance would suggest because auditors may not 

have included all problems in their reports. 

To identify the status of agency efforts to modernize core financial 

management systems, we reviewed publicly available information that we 

then confirmed with agency officials. However, we did not validate the 

information provided by agency officials on efforts to modernize these core 

systems. Furthermore, we researched current literature on private sector 

and other financial management systems implementations to identify the 

key factors leading to success. We also reviewed reports issued by GAO 

and the IGs to identify the challenges federal agencies face when 

implementing new systems. 

Based on publicly available information, we summarized the status of 

governmentwide efforts to improve federal financial management. We also 

summarized the status and progress scores received by the agencies for 

PMA’s five crosscutting initiatives. Furthermore, we reviewed documents 

pertaining to governmentwide efforts to implement PMA, including the 

efforts to develop a federal enterprise architecture and consolidate the 

number of federal civilian payroll providers. We also obtained information 

about OMB and its role in helping to integrate budget and performance 

data. Finally, we held discussions with OMB officials to obtain current 

information about its efforts to help agencies develop systems that will 

comply with FFMIA. 

We conducted our work from March through July 2003 in the Washington, 

D.C. area in accordance with generally accepted government auditing 

standards. We requested comments on a draft of this report from the 

Director of OMB or his designee. These comments are discussed in the 

“Agency Comments and Our Evaluation” section and reprinted in appendix 

VI. We also requested oral comments from agency officials whose financial 

management systems are discussed in the report. These comments, which 

are of an editorial or technical nature, have been incorporated as 

appropriate. 

Page 12 GAO-03-1062 FFMIA FY 2002 Results 
Continued Systems 

Weaknesses Impair 

Financial Management 

Accountability 

Most agencies still do not have reliable, useful, and timely financial 

information, including cost data, with which to make informed decisions 

and help ensure accountability on an ongoing basis. While agencies are 

making progress in producing auditable financial statements and 

addressing their financial management systems weaknesses, most agency 

systems are still not substantially compliant with FFMIA’s requirements. 

Figure 3 summarizes auditors’ assessments of FFMIA compliance for fiscal 

years 2000 through 2002 and suggests that the instances of noncompliance 

with FFMIA’s three requirements remain fairly constant. For fiscal year 

2002, IGs and their contract auditors reported that the systems of 19 of the 

24 CFO Act agencies did not substantially comply with at least one of 

FFMIA’s three requirements—federal financial management systems 

requirements, applicable federal accounting standards, or the SGL.19 

Auditors’ assessments of financial systems’ compliance with FFMIA for 

three agencies—DOL, EPA, and NSF—changed from fiscal years 2001 to 

2002. For fiscal year 2002, the auditors for DOL concluded that its systems 

were not in substantial compliance with the managerial cost standard and 

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

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

from the fiscal year 2001 assessments. 

19Of these 19 agencies, systems for 8 agencies were reported not to be in substantial 

compliance with all three FFMIA requirements. 

Page 13 GAO-03-1062 FFMIA FY 2002 Results 
Figure 3: Auditors’ FFMIA Assessments for Fiscal Years 2000, 2001, and 2002 

Agencies’ inability to meet the federal financial management systems 

requirements continues to be the major barrier to achieving compliance 

with FFMIA. As shown in figure 3, auditors most frequently reported 

instances of noncompliance with federal financial management systems 

requirements. These instances of noncompliance identified by auditors 

affected not only the core financial systems, but also administrative and 

programmatic systems. 

Page 14 GAO-03-1062 FFMIA FY 2002 Results 
The creation of DHS20 will affect future FFMIA reporting by the federal 

agencies and components it has absorbed. While DHS must prepare 

audited financial statements under the Accountability of Tax Dollars Act of 

2002,

21 DHS is not a CFO Act agency and therefore is not subject to FFMIA. 

However, for fiscal year 2003, DHS has agreed to have its auditors report on 

the FFMIA compliance of the department’s systems, which we view as a 

key positive action by the department. One CFO Act agency, FEMA, was 

moved in its entirety to DHS, effective March 1, 2003. Accordingly, FEMA 

is no longer a CFO Act agency and will not be required to prepare audited 

stand-alone financial statements under the CFO Act and be subject to 

FFMIA. DHS is also being formed from components of other CFO Act 

agencies. For example, the Immigration and Naturalization Service, 

formerly part of the Department of Justice, is merging into DHS. The U.S. 

Coast Guard and the Transportation Security Administration are moving 

from the Department of Transportation (DOT) to DHS. Finally, the U.S. 

Customs Service is moving from the Department of the Treasury to DHS. 

As we reported,22 each of these components faces at least one management 

problem, such as strategic human capital risks, information technology 

management challenges, or financial management vulnerabilities. 

20Pub. L. No. 107-296, 116 Stat. 2135 (2002). 

21Pub. L. No. 107-289, 116 Stat. 2049 (2002). 

22U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Homeland Security, GAO-03-102 (Washington, D.C.: January 2003). 

Page 15 GAO-03-1062 FFMIA FY 2002 Results 
While more CFO Act agencies have obtained clean or unqualified audit 

opinions on their financial statements, there is little evidence of marked 

improvements in agencies’ capacities to create the full range of information 

needed to manage day-to-day operations. The number of unqualified 

opinions has been increasing over the past 6 years, from 11 in fiscal year 

1997 to 21 for fiscal year 2002; but the number of agencies reported to have 

substantially noncompliant systems has remained relatively steady. As 

stated in OMB’s May 2002 report23 on the status of governmentwide 

financial management, many agencies have worked around systems 

problems for years to obtain unqualified opinions by expending significant 

resources and making extensive manual adjustments after the end of the 

fiscal year. The result is a 5-month-old24 snapshot of an agency’s financial 

position as of September 30 of any given year, which is not useful for dayto-day decision making. While the increase in unqualified opinions is 

noteworthy, a more important barometer of financial systems’ capability 

and reliability is that the number of agencies for which auditors provided 

negative assurance of FFMIA compliance has remained relatively constant 

throughout this same period. In our view, this has led to an expectation 

gap. When more agencies receive clean opinions, expectations are raised 

that the government has sound financial management and can produce 

reliable, useful, and timely information on demand throughout the year, 

whereas FFMIA assessments offer a different perspective. 

23Office of Management and Budget, Financial Management Status Report and 

Government-wide 5-Year Financial Management Plan (May 1, 2002). 

24Agency audited financial statements for fiscal year 2001 were due to OMB by February 27, 

2002. The cited OMB report gives the results of the fiscal year 2001 audits. 

Page 16 GAO-03-1062 FFMIA FY 2002 Results 
While all agencies met the February 1, 2003, deadline for fiscal year 2002 

agency performance and accountability reports, the deadline for the fiscal 

year 2004 reports is November 15, 2004, just 45 days after the close of the 

fiscal year. Auditors have expressed concern that agencies will have 

difficulty meeting the accelerated reporting dates for audited financial 

statements generated from the agencies’ existing financial management 

systems because of nonintegrated systems and manual processes. In their 

fiscal year 2002 reports, auditors for nine agencies—Agriculture, 

Commerce, Education, the Department of Health and Human Services 

(HHS), Justice, FEMA, GSA, NASA, and the Small Business Administration 

(SBA)—reported concerns about the agencies meeting these accelerated 

reporting deadlines. For example, Agriculture’s IG cautioned that unless 

management implements a departmentwide quality control process,25 there 

is a high risk that the opinion on its financial statements could deteriorate. 

Auditors for Commerce reported that an integrated financial management 

system for Commerce will be key to achieving the accelerated reporting 

dates in future years. Similarly, auditors for HHS reported that they remain 

concerned that HHS’s nonintegrated financial management systems will be 

an obstacle to meeting the accelerated reporting dates.26 

Crosscutting Reasons for 

Noncompliance Indicate 

Serious Problems Remain 

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

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

FFMIA’s three requirements, we identified several primary reasons related 

to FFMIA noncompliance. The weaknesses reported by the auditors, 

which we grouped into the following six categories, ranged from serious, 

pervasive systems problems to less serious problems that may affect one 

aspect of an agency’s accounting operation: 

• nonintegrated financial management systems, 

• inadequate reconciliation procedures, 

• lack of accurate and timely recording of financial information, 

25The offices of the IG and CFO are working to address audit concerns related to the fiscal 

year 2003 audit. 

26In its performance and accountability report for fiscal year 2002, HHS management stated 

that timeliness in preparing financial statements will become a greater focus for the 

department as it strives to comply with the accelerated reporting requirements and 

deadlines. 

Page 17 GAO-03-1062 FFMIA FY 2002 Results 
• noncompliance with the SGL, 

• lack of adherence to federal accounting standards, and 

• weak security controls over information systems. 

Figure 4 shows the relative frequency of these problems at the 19 agencies 

reported to have noncompliant systems and the problems relevant to 

FFMIA that were reported by their auditors. The same six types of 

problems were cited by auditors in their fiscal years 2000 and 2001 audit 

reports, as highlighted in figure 4. However, the auditors may not have 

reported these problems as specific reasons for lack of substantial 

compliance with FFMIA. In addition, we caution that the occurrence of 

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

reports of FFMIA noncompliance would suggest because auditors may not 

have included all problems in their reports. As we discuss later, the FFMIA 

testing may not be comprehensive and other problems may exist that were 

not identified and reported. For some agencies, the problems are so 

serious and well known that the auditor can readily determine that the 

systems are not substantially compliant without examining every facet of 

FFMIA compliance. 

Page 18 GAO-03-1062 FFMIA FY 2002 Results 
Figure 4: Problems Reported by Auditors for Fiscal Years 2000 through 2002 

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

Management Systems	 accounting and financial management system27 that complies with federal 

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

and timely information that is responsive to the financial information needs 

of the agency and facilitates the systematic measurement of performance, 

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

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

this regard, OMB Circular A-127, Financial Management Systems, requires 

agencies to establish and maintain a single integrated financial 

27Federal financial system requirements define an integrated financial system as one that 

coordinates a number of previously unconnected functions to improve overall efficiency 

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

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

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

system design that eliminates unnecessary duplication of transaction entry. 

Page 19 GAO-03-1062 FFMIA FY 2002 Results 
management system that conforms with functional requirements published 

by JFMIP. 

An integrated financial system coordinates a number of functions to 

improve overall efficiency and control. For example, integrated financial 

management systems are designed to avoid unnecessary duplication of 

transaction entry and greatly lessen reconciliation issues. With integrated 

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

purposes or functions. Moreover, with an integrated financial management 

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

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

reporting. 

Agencies that do not have integrated financial management systems 

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

hiring external consultants, to develop information that their systems 

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

opportunities for errors are increased when agencies’ systems are not 

integrated. Agencies with nonintegrated financial systems are more likely 

to be required to devote more resources to collecting information than 

those with integrated systems. 

Auditors frequently mentioned the lack of modern, integrated financial 

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

figure 4, auditors for 12 of the 19 agencies with noncompliant systems 

reported this as a problem. For example, auditors for DOT reported that its 

major agencies still use the Departmental Accounting and Financial 

Information System (DAFIS), the existing departmentwide accounting 

system28 and cannot produce auditable financial statements based on the 

information in DAFIS. For example, DOT’s IG reported that DOT made 

about 860 adjustments outside of DAFIS totaling $51 billion in order to 

prepare the financial statements.29 DOT’s IG also reported that there were 

problems linking some information between DAFIS and the Federal 

Highway Administration’s Fiscal Management Information System (FMIS). 

DOT uses FMIS to record initial obligations for federal aid grants to states. 

However, due to problems resulting from upgrades and changes made to 

28DOT is implementing a COTS-based core financial system called Delphi. DOT 

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

29Office of Inspector General, Department of Transportation, Consolidated Financial 

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

Page 20 GAO-03-1062 FFMIA FY 2002 Results 
the FMIS system, all obligations are not electronically transferred from 

FMIS to DAFIS. As of September 30, 2002, valid obligations of about 

$388 million were understated. Moreover, problems linking information 

also existed between Delphi, DOT’s new financial management system, and 

the Federal Transit Administration’s (FTA) financial feeder systems that 

prevented FTA from electronically processing about $350 million in 

payments related to its Electronic Clearing House Operation. These 

transactions had to be manually processed into Delphi. What is important 

here is that the information developed to prepare auditable annual financial 

statements is not available on an ongoing basis for day-to-day management 

of DOT’s programs and operations. 

As we have reported,30 cultural resistance to change, military service 

parochialism, and stovepiped operations have played a significant role in 

impeding previous attempts to implement broad-based reforms at DOD. 

The department’s stovepiped approach is most evident in its current 

financial management systems environment, which DOD recently 

estimated to include approximately 2,300 systems and systems 

development projects—many of which were developed in piecemeal 

fashion and evolved to accommodate different organizations, each with its 

own policies and procedures. As DOD management has acknowledged,31 

the department’s current financial environment is comprised of many 

discrete systems characterized by poor integration and minimal data 

standardization and prevents managers from making more timely and costeffective decisions. 

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

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

financial management system, the greater the need for adequate 

reconciliations because data are accumulated from various sources. For 

example, the HHS IG reported32 that the department’s lack of an integrated 

financial management system continues to impair the ability of certain 

30U.S. General Accounting Office, Department of Defense: Status of Financial Management 

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

31Department of Defense, Performance and Accountability Report, Fiscal Year 2002 

(Jan. 31, 2003). 

32Office of Inspector General, Independent Auditor’s Report on Financial Statements, A-17-

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

Health and Human Services. 

Page 21 GAO-03-1062 FFMIA FY 2002 Results 
operating divisions to prepare timely information. Moreover, certain 

reconciliation processes were not adequately performed to ensure that 

differences are properly identified, researched, and resolved in a timely 

manner and that account balances were complete and accurate. 

Reconciliations are needed to ensure that data has been recorded properly 

between the various systems and manual records. The Comptroller 

General’s Standards for Internal Control in the Federal Government 

highlights reconciliation as a key control activity. 

As shown in figure 4, auditors for 11 of the 19 agencies with noncompliant 

systems reported that the agencies had reconciliation problems, including 

difficulty reconciling their fund balance with Treasury accounts33 with 

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

accounting records with Treasury records monthly, which is comparable to 

individuals reconciling their checkbooks to their monthly bank statements. 

As we recently testified,34 DOD had at least $7.5 billion in unexplained 

differences between Treasury and DOD fund activity records. Many of 

these differences represent disbursements made and reported to Treasury 

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

accounting records. In addition to these unreconciled amounts, DOD 

identified and reported an additional $3.6 billion in payment recording 

errors. These include disbursements that DOD has specifically identified 

as containing erroneous or missing information and that cannot be 

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

DOD records many of these payment problems in suspense accounts. 

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

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

payment recording errors, these adjustments did not resolve the related 

errors. 

33Agencies record their budget spending authorizations in their fund balance with Treasury 

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

34GAO-03-931T. 

Page 22 GAO-03-1062 FFMIA FY 2002 Results 
Inadequate reconciliation procedures also complicate the identification 

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

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

consolidated financial statements. As we testified in April 2003,35 agencies 

had not reconciled intragovernmental activity and balances with their 

trading partners36 and, as a result, information reported to Treasury is not 

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

agencies to reconcile selected intragovernmental activity and balances 

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

agencies did not perform such reconciliations for fiscal years 2002 and 

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

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

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

for federal trading partners for certain intragovernmental accounts were 

significantly out of balance. As discussed later in this report, actions are 

being taken governmentwide under OMB’s leadership to address problems 

associated with intragovernmental activity and balances. 

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

Recording of Financial of financial information for fiscal year 2002 compared to the 14 agencies37 

Information	 for which auditors noted similar problems last year. Accurate and timely 

recording of financial information is key to successful financial 

management. Timely recording of transactions can facilitate accurate 

reporting in agencies’ financial reports and other management reports that 

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

Standards for Internal Control in the Federal Government states that 

transactions should be promptly recorded to maintain their relevance and 

value to management in controlling operations and making decisions. 

35U.S. General Accounting Office, Fiscal Year 2002 U.S. Government Financial 

Statements: Sustained Leadership and Oversight Needed for Effective Implementation of 

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

36Trading partners are U.S. government agencies, departments, or other components that do 

business with each other. 

37In our October 2002 FFMIA report, we stated that auditors had discussed the lack of 

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

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

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

to make these assessments. 

Page 23 GAO-03-1062 FFMIA FY 2002 Results 
Untimely recording of transactions during the fiscal year can result in 

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

manual financial statement preparation efforts that are susceptible to error 

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

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

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

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

auditors reported38 that, for fiscal year 2002, Justice components did not 

adjust the status of obligations on a quarterly basis as required, and as a 

result, extensive manual efforts had to be performed at year-end to correct 

the status of obligation records. This process of reviewing the status of 

obligations only at the end of the year increases the risk that errors will go 

undetected, does not provide managers with accurate information during 

the year for decision making, and results in misstatements in the financial 

statements. 

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

requirements of FFMIA. However, as shown in figure 4, auditors for 9 of 

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

comply with SGL requirements. The SGL promotes consistency in financial 

transaction processing and reporting by providing a uniform chart of 

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

for comparison at the agency and governmentwide levels. These defined 

accounts and pro forma transactions are used to standardize the 

accumulation of agency financial information, as well as enhance financial 

control and support financial statement preparation and other external 

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

provide consistent financial information across their components and 

functions. 

38PricewaterhouseCoopers, Report of Independent Accountants, January 15, 2003, FY 2002 

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

Page 24 GAO-03-1062 FFMIA FY 2002 Results 
As in previous years, HUD’s auditors reported that the Federal Housing 

Administration’s (FHA) systems were noncompliant with the SGL for fiscal 

year 2002 because FHA must use several manual processing steps to 

convert its commercial accounts to SGL accounts.39 FHA’s 19 legacy 

insurance systems, which fed transactions to its commercial general ledger 

system, lacked the capabilities to process transactions in the SGL format. 

Therefore, FHA provided only consolidated summary-level data to HUD’s 

Central Accounting and Program System (HUDCAPS). As we reported,40 

FHA used several manual processing steps to provide summary-level data, 

including the use of personal-computer-based software to convert the 

summary-level commercial accounts to government SGL, and transfer the 

balances to HUDCAPS. This process did not comply with JFMIP 

requirements that the core financial system provide for automated monthand year-end closing of SGL accounts and the roll-over of the SGL account 

balances. 

Lack of Adherence to Federal One of FFMIA’s requirements is that agencies’ financial management 

Accounting Standards	 systems account for transactions in accordance with federal accounting 

standards. Agencies face significant challenges implementing these 

standards. As shown in figure 4, auditors for 13 of the 19 agencies with 

noncompliant systems reported that these agencies had problems 

complying with one or more federal accounting standards. Auditors 

reported that agencies are having problems implementing standards that 

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

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

agencies—DOD, Justice, and FEMA—reported weaknesses in compliance 

with Statement of Federal Financial Accounting Standards (SFFAS) No. 6, 

Accounting for Property, Plant, and Equipment, which became effective 

for fiscal year 1998. Auditors for DOD reported that DOD did not capture 

the correct acquisition date and cost of its property, plant, and equipment, 

due to system limitations. 

39To help address deficiencies with its legacy general ledger system, as a first step in 

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

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

monthly interface of summary-level balances with HUDCAPS. 

40U.S. General Accounting Office, Department of Housing and Urban Development: Status 

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

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

Page 25 GAO-03-1062 FFMIA FY 2002 Results 
Therefore, DOD could not provide reliable information for reporting 

account balances and computing depreciation. Auditors for 2 agencies— 

HUD and Justice—reported weaknesses in compliance with SFFAS No. 7, 

Revenue and Other Financing Sources, which also became effective for 

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

FHA’s budget execution and fund control. According to the auditors, FHA’s 

financial systems and processes are not capable of fully monitoring and 

controlling budgetary resources. Finally, auditors for 3 agencies—the 

Agency for International Development (AID), NASA, and NRC—reported 

trouble with implementing SFFAS No. 10, Accounting for Internal Use 

Software, which became effective at the beginning of fiscal year 2001. For 

example, auditors reported that NASA’s policies and procedures do not 

specifically address purchasing software as part of a package of products 

and services. In their testing, NASA’s auditors identified errors for costs 

that were originally recorded as expenses, but instead should have been 

capitalized as assets. 

The requirement for managerial cost information has been in place since 

1990 under the CFO Act and since 1998 as a federal accounting standard. 

Auditors for five agencies reported problems implementing SFFAS No. 4, 

Managerial Cost Accounting Concepts and Standards. For example, 

auditors for DOL reported that the department has not developed the 

capability to routinely report the cost of outputs used to manage program 

operations at the operating program and activity levels. Moreover, DOL 

does not use managerial cost information for purposes of performance 

measurement, planning, budgeting, or forecasting. At DOT, auditors stated 

that its agencies, other than the Federal Aviation Administration (FAA) and 

the U.S. Coast Guard,41 have begun to identify requirements for 

implementing cost accounting systems. DOT’s existing accounting system, 

DAFIS, does not have the capability to capture full costs, including direct 

and indirect costs assigned to DOT programs. The Secretary recently 

advised OMB that as the remaining DOT agencies migrate to Delphi, DOT’s 

new core financial system, Delphi will provide them enhanced cost 

accounting capabilities. 

41FAA has efforts underway to implement a cost accounting system as required by the 

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

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

documentation user fees. 

Page 26 GAO-03-1062 FFMIA FY 2002 Results 
Managerial cost information is critical for implementing the PMA. 

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

initiatives42 will matter little without the integration of agency budgets with 

performance. Although the lack of a consistent information and reporting 

framework for performance, budgeting, and accounting may obscure how 

well government programs are performing as well as inhibit comparisons, 

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

support an understanding of the links between performance, budgeting, 

and accounting information measured and reported for different purposes. 

However, even the most meaningful links between performance results and 

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

this link between resources consumed and performance results is 

necessary to make public-private competition decisions as part of 

competitive sourcing. Therefore, agencies must address long-standing 

problems within their financial systems. As agencies implement and 

upgrade their financial management systems, opportunities exist for 

developing cost management information as an integral part of the system 

to provide important information that is timely, reliable, and useful. 

As we recently reported,43 DOD’s continuing inability to capture and report 

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

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

processes in place to capture the required cost information from the 

hundreds of millions of transactions it processes each year. Lacking 

complete and accurate overall life-cycle cost information for weapons 

systems impairs DOD’s and congressional decision makers’ ability to make 

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

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

impediment to controlling and managing weapon systems costs. 

Weak Security Controls over Information security weaknesses are one of the frequently cited reasons 

Information Systems	 for noncompliance with FFMIA and are a major concern for federal 

agencies and the general public. These weaknesses are placing enormous 

amounts of government assets at risk of inadvertent or deliberate misuse, 

financial information at risk of unauthorized modification or destruction, 

sensitive information at risk of inappropriate disclosure, and critical 

42The other four crosscutting initiatives are improved financial performance, strategic 

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

43GAO-03-931T. 

Page 27 GAO-03-1062 FFMIA FY 2002 Results 
operations at risk of disruption. Auditors for all 19 of the agencies reported 

as noncompliant with FFMIA identified weaknesses in security controls 

over information systems. Unresolved information security weaknesses 

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

decision making and financial reporting because such weaknesses could 

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

transmitted by an agency’s financial management system. 

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

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

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

program management, which provides the framework for ensuring that 

risks are understood and that effective controls are selected and properly 

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

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

change controls, which ensure that only authorized software programs are 

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

individual can independently perform inappropriate actions without 

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

programs that support multiple applications from tampering and misuse, 

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

operations experience no significant disruption. As we discussed in our 

April 2003 testimony,

44 our analyses of audit reports issued from October 

2001 through October 2002 for 24 of the largest federal agencies continued 

to show significant weaknesses in federal computer systems that put 

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

in each of the 24 agencies included in our review, and they covered all six 

major areas of general controls. Although our analyses showed the most 

agencies had significant weaknesses in these six control areas, weaknesses 

were most often cited for access controls and security program 

management. 

44U.S. General Accounting Office, Information Security: Progress Made, But Challenges 

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

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

Page 28 GAO-03-1062 FFMIA FY 2002 Results 
Since 1997, GAO has considered information security a governmentwide 

high-risk area.

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

security program management continues to be a widespread problem. 

Concerned with reports of significant weaknesses in federal computer 

systems that make them vulnerable to attack, the Congress enacted 

Government Information Security Reform provisions46 (commonly known 

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

federal information security. GISRA required agencies to implement an 

information security program that is founded on a continuing risk 

management cycle and largely incorporates existing security policies found 

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

Appendix III. GISRA provided an overall framework for managing 

information security and established new annual review, independent 

evaluation, and reporting requirements to help ensure agency 

implementation and both OMB and congressional oversight. 

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

that the federal government had made significant strides in addressing 

serious and pervasive information technology security problems, but that 

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

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

challenges.47 Also, OMB reported significant progress in agencies’ 

information technology security performance, primarily as indicated by 

quantitative governmentwide performance measures that OMB required 

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

include measures such as the number of systems that have been assessed 

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

have been tested. 

As discussed in our June 2003 testimony,

48 the governmentwide 

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

45U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington, 

D.C.: January 2001). 

46These provisions are part of the Floyd D. Spence National Defense Authorization Act for 

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

47Office of Management and Budget, FY 2002 Report to Congress on Federal Government 

Information Security Reform (May 16, 2003). 

48U.S. General Accounting Office, Information Security: Continued Efforts Needed to Fully 

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

Page 29 GAO-03-1062 FFMIA FY 2002 Results 
implementing key information security requirements, continue to 

emphasize that, overall, agencies are not effectively implementing and 

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

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

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

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

The information security program, evaluation, and reporting requirements 

established by GISRA have been permanently authorized and strengthened 

through the recently enacted Federal Information Security Management 

Act of 2002 (FISMA).49 In addition, FISMA provisions establish additional 

requirements that can assist the agencies in implementing effective 

information security programs, help ensure that agency systems 

incorporate appropriate controls, and provide information for 

administration and congressional oversight. These requirements include 

the designation of and establishment of specific responsibilities for an 

agency senior information security officer, implementation of minimum 

information security requirements for agency information and information 

systems, and required agency reporting to the Congress. Agencies’ fiscal 

year 2003 FISMA reports, due to OMB in September 2003, should provide 

additional information on the status of agencies’ efforts to implement 

federal information security requirements. In addition, FISMA requires 

each agency to report any significant deficiency in an information security 

policy, procedure, or practice, if relating to financial management systems, 

as an instance of a lack of substantial compliance under FFMIA.50 

Auditors Provided Negative 

Assurance of Substantial 

Compliance 

Auditors for five agencies—the Department of Energy, EPA,51 GSA, NSF, 

and SSA—provided negative assurance in reporting on FFMIA compliance 

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

stating that while they did not opine as to compliance with FFMIA, nothing 

had come to their attention indicating that these agencies’ financial 

management systems did not meet FFMIA requirements. While this form 

of reporting has useful applications, it is not relevant or appropriate for this 

particular type of engagement given the requirements of FFMIA. 

49Pub. L. No. 107-347, title III, 116 Stat. 2899, 2946 (2002). 

5044 U.S.C. 3544(c)(3). 

51EPA’s systems were found by its auditors to be in substantial compliance with the 

managerial cost accounting standard. 

Page 30 GAO-03-1062 FFMIA FY 2002 Results 
Our fundamental concern is that this type of reporting may provide a false 

impression that the systems have been found to be substantially compliant 

by the auditors, which is not what the auditors are saying. In fact, the 

provisions of FFMIA require auditors to “...report whether the agency 

financial management systems comply with the requirements of [the act].” 

In providing guidance on reporting on substantial compliance with FFMIA, 

OMB Bulletin No. 01-02, Audit Requirements for Federal Financial 

Statements, states that auditors should report that “the results of our tests 

disclosed no instances in which the agency’s financial management 

systems did not substantially comply [with FFMIA].” If testing disclosed 

that the agencies’ systems are not substantially compliant, auditors are 

required to report the instances of noncompliance identified. This is an 

important distinction because the term “disclosed no instances” carries a 

commonly accepted and well-known interpretation across the audit 

community that providing negative assurance requires only limited testing 

because the auditor is not giving an opinion on whether the systems are 

substantially compliant. 

While work performed in auditing financial statements would naturally 

offer some perspective regarding FFMIA compliance, the work needed to 

assess substantial compliance of systems with FFMIA would have to be 

more comprehensive than that performed for purposes of rendering an 

opinion on the financial statements. In performing financial statement 

audits, auditors generally focus on the capability of the financial 

management systems to process and summarize financial information that 

flows into the financial statements. In contrast, FFMIA is much broader, 

and auditors need to consider many other aspects of the financial 

management system including whether an agency’s systems comply with 

systems requirements and provide reliable, useful, and timely financialrelated information for managing day-to-day operations. FFMIA was 

designed to identify weaknesses and lead to system improvements that 

would result in agency managers being routinely provided with reliable, 

useful, and timely financial-related information to measure performance 

and increase accountability throughout the year, rather than just at yearend. One important consideration is that the law does not specify when 

FFMIA compliance testing must be done. Thus, auditors can perform 

FFMIA assessments at any time throughout the fiscal year, as long as the 

assessment is updated to the end of the reporting period. FFMIA 

assessments can be a separate review that could be staggered throughout 

the year when the auditors’ workloads are not as burdensome or to spread 

out the work. 

Page 31 GAO-03-1062 FFMIA FY 2002 Results 
Today, for some agencies, the auditor may have sufficient knowledge to 

conclude that an agency is not in substantial compliance with FFMIA 

without performing additional testing beyond that needed for the financial 

statement audit opinion, because systems deficiencies are well known and 

well documented. Because not all areas were tested, additional 

weaknesses might exist that were not identified and reported. However, as 

agencies’ systems move toward substantial compliance with FFMIA, 

auditors will need to perform more comprehensive testing to assess 

agencies’ systems compliance with FFMIA. 

In addition to recommending that OMB require agency auditors to provide 

a statement of positive assurance when reporting substantial compliance, 

we also previously recommended52 that OMB (1) explore further 

clarifications of the definition of “substantial compliance” to help ensure 

consistent application of the term, (2) reiterate that the indicators of 

compliance in its January 4, 2001, guidance are not meant to be all 

inclusive, (3) develop additional guidance, in accordance with the 

GAO/PCIE FAM,

53 to specify procedures that auditors should perform 

when assessing FFMIA compliance, and (4) emphasize the importance of 

cost accounting to managers by requesting that auditors pay special 

attention to agencies’ ability to meet the requirements of SFFAS No. 4, 

Managerial Cost Accounting Concepts and Standards. 

As mentioned previously, PCIE, working with GAO, has issued a new 

section of its joint GAO/PCIE FAM that provided detailed audit steps for 

testing agency systems’ substantial compliance with FFMIA. The new FAM 

guidance also emphasized the importance of assessing cost management 

and reiterated that OMB’s indicators of compliance were examples and 

therefore are not all-inclusive. Appropriately implemented by agency 

auditors, this FAM guidance would provide a sufficient basis to conclude 

whether agencies’ systems substantially comply with FFMIA. While the 

new FAM guidance addresses three of our prior recommendations, the 

other two recommendations have not yet been addressed. 

52GAO-02-29. 

53The Financial Audit Manual, jointly issued by GAO and the PCIE, provides the 

methodology for performing financial statement audits of federal entities. 

Page 32 GAO-03-1062 FFMIA FY 2002 Results 
Accordingly, we reaffirm the 54 remaining two prior recommendations, 

aimed at enhancing OMB’s FFMIA audit guidance, relating to requiring 

agency auditors to provide a statement of positive assurance when 

reporting an agency’s systems to be in substantial compliance with FFMIA, 

and further clarifying the definition of “substantial compliance” to 

encourage consistent reporting. As stated in its comments on a draft of 

this report, OMB disagreed with our recommendation that it require agency 

auditors to provide a statement of positive assurance when reporting that 

agency systems substantially comply with FFMIA. OMB stated that, in its 

view, positive assurance does not measure the quality or usefulness of the 

financial information. To the contrary, in our view, positive assurance can 

lead to improvements in both the quality and usefulness of the financial 

information by providing a higher standard for the auditors’ FFMIA 

assessment. In response to our reaffirmation of our recommendation to 

clarify the meaning of substantial compliance so that agency auditors and 

management can consistently interpret the term, OMB commented that 

clear performance and results standards are better at promoting such 

consistency. OMB added that it will consider this recommendation in that 

context in any future policy and guidance updates. 

54GAO-02-29. 

Page 33 GAO-03-1062 FFMIA FY 2002 Results 
Agency Efforts to 

Implement New 

Financial Systems 

Across government, agencies have many efforts underway to implement or 

upgrade financial systems to alleviate long-standing weaknesses in 

financial management. As we recently reported,

55 as of September 30, 2002, 

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

implementing a new core financial system.56 Of these 17 agencies, 11 had 

selected a software product certified by the Program Management Office 

(PMO).57 According to OMB Circular A-127, agencies are required to 

purchase COTS packages sold by vendors whose core financial systems 

software have been certified58 by the PMO. The other 6 agencies have not 

reached the software selection phase of their acquisition process. 

Implementing a core financial system that has been certified does not 

guarantee that these agencies will have financial systems that are 

compliant with FFMIA. One critical factor affecting FFMIA compliance is 

the integration of the core system with the agency’s administrative59 and 

55GAO-03-903R. 

56Core financial systems, as defined by JFMIP, include managing general ledger, funding, 

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

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

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

performance measurement and analysis and for financial statement preparation. 

57The PMO, which is managed by JFMIP’s Executive Director with funds provided by the 

CFO Council agencies, tests vendor COTS packages and certifies that they meet certain 

financial management system requirements for core financial systems. 

58The certification of a new core financial system software by the PMO is applicable at the 

time of purchase. Agency management is responsible for implementing and maintaining the 

software in accordance with JFMIP’s core financial system requirements. See app. I for a 

further discussion of systems requirements. 

59Examples of administrative systems are those common to all agencies such as budget, 

acquisition, travel, property, and payroll. 

Page 34 GAO-03-1062 FFMIA FY 2002 Results 
programmatic60 systems and the validity and completeness of data from 

systems. Another factor affecting the capability of agency systems to 

comply with FFMIA is whether modifications or customizations61 have 

been made to the certified core financial system software. 

As of September 30, 2002, target implementation dates for 16 of the 17 

agencies planning to implement new core financial systems ranged from 

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

target date for full implementation. As shown in figure 5, 3 of the 16 

agencies—Agriculture, GSA, and NASA—planned to complete 

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

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

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

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

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

Moreover, as shown in figure 5, 4 agencies—DOL, HHS, EPA, and HUD— 

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

agencies—the Departments of the Interior and Justice62—projected fiscal 

year 2008 for completion of their core financial systems implementation. 

60Programmatic systems are those needed to carry out an agency’s mission. For example, 

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

61Customization is the process of setting parameters within an application to make it 

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

supported by vendors in subsequent upgrades. Modification is the process of writing or 

changing code and modifications are not supported by vendors in subsequent upgrades. 

62Justice plans a staggered implementation approach of its new core financial system in its 

component agencies with target completion dates ranging from October 2004 to October 

2007. 

Page 35 GAO-03-1062 FFMIA FY 2002 Results 
Page 36 GAO-03-1062 FFMIA FY 2002 Results

Figure 5: ency Target Dates for Implementation of Core Financial Systems as of September 30, 2002

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

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

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

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

fully implemented new core financial systems since the beginning of fiscal

year 2001—including the Department of Education, NSF,

63 the Nuclear 

Regulatory Commission (NRC), SBA, and OPM. FEMA had implemented a 

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

64 is 

not planning to implement an agencywide core financial system, but

several of its subcomponent agencies—including the Internal Revenue 

Service and the Office of the Comptroller of the Currency—are in the 

process of implementing core financial system software packages. 

In their performance and accountability reports, management for some 

agencies stated that full implementation of these new systems will address 

their systems’ substantial noncompliance with FFMIA. However, as we 

previously discussed, implementation of a new core financial system may 

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

Labor Defense

EPA

HUD

HHS

Source: GAO.

Energy AID

State

VA

GENERAL SERVICES

ADMINISTRATION

GSA

NASA

Agriculture DOT

SSA

Commerce

Interior

DEPARTMENT OF JUSTICE

Justice

2003 2004 2005 2006 2007 2008 Not yet

determined

63NSF’s core financial system was implemented in 1992. The maintenance needed to migrate 

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

64Although Treasury does not have an agencywide core financial system, it does utilize 

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

Ag
the myriad of problems affecting agencies beyond their core financial 

systems. Nevertheless, it is imperative that agencies adopt leading 

practices to help ensure successful systems implementation. 

Successful 

Implementation of 

Financial Management 

Systems Is Key for 

Improved Financial 

Reporting 

Implementing new financial management systems provides a foundation 

for improved financial management, including enhanced financial 

reporting capabilities that will help financial managers meet OMB’s 

accelerated reporting deadlines and make better financial management 

decisions due to more timely information. Successful implementation of 

financial management systems has been a continuous challenge for both 

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

have experienced setbacks and delays in their implementation processes. 

According to OMB’s former Associate Director for Information Technology 

and e-Government, agencies have experienced lengthy or delayed 

deployment schedules and implementation cost overruns. These delays 

were caused by various factors, including a lack of executive level 

involvement, poor communication between managers and users, and 

inadequate project planning. Our work at NASA and DOD, for example, 

has also shown the need for consistent executive support, communication 

with all stakeholders, full identification of user requirements, and adequate 

planning. 

Federal agencies, such as NASA and DOD, have experienced many of these 

challenges in attempting to implement new financial management systems. 

For example, NASA began its IFMP in April 2000, its third attempt in recent 

years at modernizing financial processes and systems. NASA’s previous 

two efforts were eventually abandoned after a total of 12 years and a 

reported $180 million in spending. As part of this effort, NASA recently 

implemented a new core financial module that was expected to provide 

financial and program managers with timely, consistent, and reliable cost 

and performance information for management decisions. However, earlier 

this year we reported65 that NASA’s core financial module was not being 

implemented to accommodate the information needed by program 

managers, cost estimators, and the Congress. The need for ongoing 

communication between project managers and systems users is crucial to 

any successful systems implementation project. Project managers need to 

understand the basic requirements of users while users should be involved 

65GAO-03-507. 

Page 37 GAO-03-1062 FFMIA FY 2002 Results 
in the project’s planning process. NASA’s program officials chose to defer 

the development of some functions and related user requirements in order 

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

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

on information from nonintegrated programs outside of the core financial 

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

to manage programs. 

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

implementing its new financial management system. NASA’s 

implementation plan calls for the system to be constructed using 

commercial components; however, NASA has not analyzed the 

interdependencies of the various subsystems. When constructing a system 

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

characteristics of each component in order to select compatible systems 

that can be integrated without having to build and maintain expensive 

interfaces. By acquiring components without first understanding their 

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

will not optimize mission performance, will cost more, and take longer to 

implement than necessary. 

Page 38 GAO-03-1062 FFMIA FY 2002 Results 
Past DOD initiatives to improve its financial operations and other key 

business support processes, such as the Corporate Information 

Management (CIM) initiative,66 failed in part because the department did 

not obtain and sustain departmentwide senior management leadership, 

commitment, and support. In recognition of the far-reaching nature of 

DOD’s financial management problems, on September 10, 2001, Secretary 

Rumsfeld announced a broad, top-priority initiative intended to “transform 

the way the department works and what it works on.” For its current 

business enterprise architecture, DOD established two executive 

committees to provide program guidance; however, these committees are 

not responsible for directing and overseeing the architecture effort, nor are 

they accountable for approving the architecture. Our recent reports67 

highlight this and other investment management and project weaknesses at 

DOD. GAO recommended68 that DOD ensure that the executive committee 

members are singularly and collectively made accountable for the delivery 

and approval of the enterprise architecture. DOD agreed and has a 

proposed governance structure to implement the architecture. 

Private sector entities have also encountered a number of challenges and 

setbacks when implementing new systems. These challenges have 

included competition between internal organizational units, user resistance 

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

underlying corporate strategy. Entities are overcoming their challenges 

because better tools have been created to monitor and control progress 

and skilled project managers with better management processes are being 

used. 

66DOD intended CIM to reform all of its functional areas—including finance, procurement, 

materials management, and human resources—through the consolidation, standardization, 

and integration of its numerous, duplicative information systems. After 8 years and about 

$20 billion in expenditures, DOD abandoned the initiative. 

67GAO-03-465 and GAO-03-458. 

68GAO-03-458. 

Page 39 GAO-03-1062 FFMIA FY 2002 Results 
The Standish Group International, Inc69 has reported that the number of 

successful systems implementation projects in the private sector is 

increasing. From 1994 to 2000, successful projects increased from 28,000 

to 78,000. The Standish Group,70 through its research, has identified 10 

project success factors. These factors include 

• user involvement, 

• executive support, 

• experienced project managers, 

• firm basic requirements, 

• clear business objectives, 

• minimized scope, 

• standard software infrastructure, 

• formal methodology, 

• reliable estimates, and 

•	 other, including small milestones, proper planning, competent staff, and 

ownership. 

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

factors to be successful,71 the more factors that are present in the project 

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

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

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

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

69The Standish Group is a well-known research advisory firm that focuses on missioncritical software applications, management techniques, and technologies. 

70The Standish Group’s research is done through focus groups, in-depth surveys, and 

extensive interviews with Fortune 500 Companies. 

71Successful implementation is defined as a project that is completed on time, on budget, 

and with all the features and functions originally specified. 

Page 40 GAO-03-1062 FFMIA FY 2002 Results 
is crucial that federal departments and agencies follow accepted best 

practices and embrace as many of the key characteristics for successful 

implementation projects as possible to help minimize the risk of failed 

projects and result in systems that provide the necessary data for 

management’s needs. 

Our executive guide72 on creating value through world-class financial 

management describes 11 practices critical for establishing and 

maintaining sound financial operations. These practices include 

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

using commercial components such as COTS packages may require 

significant changes in the way federal departments conduct their business. 

According to the leading finance organizations that formed the basis for 

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

is reengineering business processes to fit the new software applications 

that are based on best practices. Moreover, OMB’s former Associate 

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

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

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

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

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

raise awareness of financial systems data conversion considerations to be 

addressed by financial management executives and project managers when 

planning or implementing a new financial management system. The JFMIP 

paper addresses (1) key considerations regarding data conversion and 

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

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

these approaches. 

72U.S. General Accounting Office, Executive Guide: Creating Value Through World-class 

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

Page 41 GAO-03-1062 FFMIA FY 2002 Results 
Status of 

Governmentwide 

Financial Management 

Improvement Efforts 

In addition to individual agency efforts as discussed in a prior section, the 

JFMIP Principals, congressional oversight, and the PMA are key drivers of 

governmentwide efforts now underway to improve federal financial 

management. In fiscal year 2002, the JFMIP Principals continued the series 

of regular, deliberative meetings that focused in key financial management 

reform issues. Legislation enacted by the Congress as well as its oversight 

of federal financial management also has had a significant impact on 

stimulating change. The PMA, being implemented by the administration as 

an agenda for improving the management and performance of the federal 

government, targets the most apparent deficiencies where the opportunity 

to improve performance is the greatest. The success of agency 

implementation of FFMIA impacts all five of the PMA’s crosscutting 

initiatives73 to a greater or lesser extent. Furthermore, the modernization 

of agency financial management systems, as envisioned by FFMIA, is 

critical to the success of all of these initiatives. 

JFMIP Principals	 Starting in August 2001, the JFMIP Principals74 have been meeting regularly 

to deliberate and reach agreements focused on financial management 

reform issues including (1) defining success measures for financial 

performance that go far beyond an unqualified audit opinion,

75 

(2) significantly accelerating financial statement reporting to improve 

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

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

government’s consolidated financial statements. This forum has provided 

an opportunity to reach decisions on key issues and undertake strategic 

activities that reinforce the effectiveness of groups such as the CFO 

Council in making progress toward federal financial management. In fiscal 

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

meetings. Continued personal involvement of the JFMIP Principals is 

critical to the full and successful implementation of federal financial 

73These five crosscutting initiatives are (1) improved financial performance, (2) strategic 

human capital management, (3) competitive sourcing, (4) expanded electronic government, 

and (5) budget and performance integration. 

74The JFMIP Principals are the Secretary of the Treasury, the Directors of OMB and OPM, 

and the Comptroller General of the United States. 

75These success measures include financial management systems that routinely provide 

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

material noncompliance with laws and regulations as well as FFMIA. 

Page 42 GAO-03-1062 FFMIA FY 2002 Results 
management reform and to providing greater transparency and 

accountability in managing federal programs and resources. 

One effort attributable to the JFMIP Principals is the ongoing 

governmentwide effort to resolve the problems accounting for 

intragovernmental activity and balances. As we have reported,76 the federal 

government’s inability to properly account for intragovernmental activity 

and balances impedes achieving the goal of a clean opinion on the U.S. 

consolidated financial statements. OMB has identified the lack of 

standardization in processing and recording intragovernmental activity as a 

major contributing factor to the federal government’s inability to properly 

account for intragovernmental activity and balances. As a step to resolve 

this weakness, OMB, which is providing important leadership for this 

effort, and the Integrated Acquisition Environment (IAE)77 steering 

committee have established basic requirements for processing and 

recording intragovernmental activity for all agencies. The vision for 

intragovernmental activity is that they will eventually be fed through a 

central portal system and tracked. The IAE has established the Business 

Partner Network (BPN)78 to provide information on all trading partners, 

including commercial, government, and grantees. Moreover, a Web-based 

portal, the Intragovernmental Transaction Portal, has been developed and a 

small group of agencies will be testing two types of transactions—space 

rental and information technology—as part of a pilot project. 

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

catalyst to reforming financial management in the federal government. As 

previously discussed, the legislative framework provided by the CFO Act 

and FFMIA, among others, produces a solid foundation to stimulate needed 

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

Accountability of Tax Dollars Act of 200279 to extend the financial 

statements audit requirements of the CFO Act to additional federal 

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

these issues, as demonstrated by hearings on federal financial management 

76GAO-03-572T.


77The Integrated Acquisition Environment is one of the 25 projects of the e-gov initiative. 


78The BPN is the single point of registration and validation of vendor data for all agencies.


79Pub. L. No. 107-289, 116 Stat. 2049 (2002). 


Page 43 GAO-03-1062 FFMIA FY 2002 Results 
and reform held over the past several years. It will be key that the 

appropriations, budget, authorizing, and oversight committees hold agency 

top management accountable for resolving these problems and that they 

support improvement efforts. The continued attention by the Congress to 

these issues will be critical to sustaining momentum for financial 

management reform. 

President’s Management 

Agenda 

As stated in the PMA, there are few items more urgent than ensuring that 

the federal government operates efficiently and is results-oriented. Several 

of the governmentwide efforts underway to improve federal financial 

management support the implementation of the PMA’s five crosscutting 

initiatives. While FFMIA implementation relates directly to the improved 

financial performance initiative, development and maintenance of FFMIAcompliant systems will also affect the implementation of the other four 

initiatives. Notably, OMB is developing a federal enterprise architecture 

that will impact the government’s ability to make significant progress 

across the PMA. For example, as part of the e-gov initiative, the number of 

federal payroll providers is being consolidated. Numerous agencies had 

targeted their payroll operations for costly modernization efforts. 

According to OMB, millions of dollars will be saved through shared 

resources and processes and by modernizing on a cross-agency, 

governmentwide basis. The administration’s implementation of its 

Program Assessment Rating Tool (PART) relates specifically to the PMA 

initiative of integration of budget and performance information. Reliable 

cost data, so crucial to effective FFMIA implementation, is critical not only 

for the improved financial performance and budget and performance 

integration initiatives, but also for competitive sourcing. For effective 

management, this cost information must not only be timely and reliable, 

but also both useful and used. 

The administration is using the Executive Branch Management Scorecard, 

based on governmentwide standards for success, to highlight agencies’ 

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

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

achieving the standards for success for each of the five crosscutting 

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

system. Information about agencies’ status scores and progress scores will 

be provided later in this report. 

Financial Performance Initiative	 The PMA initiative to improve financial performance is aimed at ensuring 

that federal financial systems produce accurate and timely information to 

Page 44 GAO-03-1062 FFMIA FY 2002 Results 
support operating, budget, and policy decisions. It focuses on key issues 

such as data reliability, clean financial statement audit opinions, and 

effective financial management systems and internal control. The 

standards for success used for scoring agency status and progress for the 

improved financial performance initiative not only recognize the 

importance of achieving an unqualified or “clean” opinion, but also focus 

on the fundamental and systemic issues that must be addressed to 

routinely generate timely, accurate, and useful financial information and 

provide a sound environment of internal control and effective systems. For 

example, the scorecard measures whether agencies have material internal 

control weaknesses or material noncompliance with laws and regulations, 

and whether agency systems meet FFMIA requirements. As stated in the 

PMA, without sound internal controls and accurate and timely financial 

information, it will not be possible to accomplish the President’s agenda to 

secure the best performance and highest measure of accountability for the 

American people. FFMIA embodies the same things—systems that can 

generate reliable, useful, and timely information with which to make fully 

informed decisions and to ensure accountability on an ongoing basis. 

E-gov Initiative	 To implement this PMA initiative, OMB has selected 25 presidential e-gov 

efforts that focus on a wide variety of services, aiming to simplify and unify 

agency work processes and information flows, provide one-stop services to 

citizens, and enable information to be collected online once and reused, 

rather than being collected many times. One of the 25 presidential e-gov 

efforts is “e-payroll,” which is intended to consolidate the federal 

government’s many incompatible payroll systems into just two that would 

service all government employees. GAO has long supported and called for 

such initiatives to standardize and streamline common systems, which can 

not only reduce costs, but if done correctly, can improve accountability. 

OMB and OPM, the managing partner for the e-payroll initiative, announced 

on January 10, 2003, the selection of two partnerships for federal civilian 

payroll processing--one partnership between DOD’s Defense Finance and 

Accounting Service and GSA, and another between Agriculture’s National 

Finance Center and Interior’s National Business Center. According to the 

former Director of OMB, the e-payroll effort, by consolidating duplicative 

payroll modernization efforts, should save the federal government an 

estimated $1.2 billion over the next decade in future information 

technology investments given the economies of scale and cost avoidance. 

Page 45 GAO-03-1062 FFMIA FY 2002 Results 
According to OMB, the need for a federal enterprise architecture80 has 

arisen from the e-gov effort. OMB has stated that the development of a 

Federal Enterprise Architecture (FEA) is a cornerstone to the federal 

government’s success in managing its nearly $60 billion81 in IT spending. 

Among other things, the FEA, being developed by the Federal Enterprise 

Architecture Program Management Office (FEAPMO),82 has been described 

as a tool to enable the federal government to identify opportunities to 

leverage technology and alleviate redundancy, or to highlight where agency 

overlap limits the value of IT investments. OMB recently reported83 that by 

using the FEA Business Reference Model to evaluate agency IT budget 

requests for fiscal year 2004, it has been able to identify potential 

redundancies in six business lines. According to OMB, the Business 

Reference Model, one of five reference models, is the foundation of the 

FEA and is intended to describe the business operations of the federal 

government independent of the agencies that perform them. 

Budget and Performance The PMA recognized that improvements in the management of human 

Integration Initiative	 capital, financial performance, expanding electronic government, and 

competitive sourcing matter little if they are not linked to program 

performance and resource allocation decisions. Although the lack of a 

consistent information and reporting framework for performance, 

budgeting, and accounting may obscure how well government programs 

are performing as well as inhibit comparisons, no one presentation can 

meet all users’ needs. Any framework should support an understanding of 

the links between performance, budgeting, and accounting information 

measured and reported for different purposes. However, even the most 

meaningful links between performance results and resources consumed 

80An enterprise architecture provides a clear and comprehensive picture of an entity, 

whether it is an organization (e.g., federal department or agency) or a functional or mission 

area that cuts across more than one organization (e.g., financial management). This picture 

consists of snapshots of both the enterprise’s current or “As Is” operational and 

technological environment and its target or “To Be” environment, as well as a capital 

investment road map for transitioning from the current to the target environment. These 

snapshots further consist of “views,” which are basically one or more architecture products 

that provide conceptual or logical representations of the enterprise. 

81The President’s budget request for IT spending was $59.4 billion for fiscal year 2004. 

82OMB has established the FEAPMO to develop a comprehensive, business-driven blueprint 

for modernizing the federal government. 

83Office of Management and Budget, Implementing the President’s Management Agenda 

for E-Government, E-Government Strategy (April 2003). 

Page 46 GAO-03-1062 FFMIA FY 2002 Results 
are only as good as the underlying data. Therefore, agencies must address 

long-standing problems within their financial systems. As agencies 

implement and upgrade their financial management systems, opportunities 

exist for developing cost management information as an integral part of the 

system to provide important information that is timely, reliable, and useful. 

The administration has set forth an ambitious agenda for performance 

budgeting, calling for agencies to better align their budgets with their 

performance goals and focus on capturing full budgetary cost and matching 

these costs with output and outcome goals. Performance-based budgeting 

can help shift the focus of debate from inputs to outcomes and results, 

enhancing the government’s ability to gauge performance and assess 

competing claims for scarce resources. While budget reviews have always 

involved discussions of program performance, such discussions have not 

always been conducted in a common language or with transparency. Last 

year, the administration introduced a formal assessment tool into its 

deliberations, PART, that is the central element of the PMA’s performance 

budgeting initiative. PART represents a step toward more structured 

involvement of program and performance analysis in the budget and 

includes general questions on (1) program purpose and design, (2) strategic 

planning, (3) program management, and (4) program results. It also 

includes a set of more specific questions that vary according to the type of 

delivery mechanism or approach the program uses, and calls for timely, 

reliable data to perform those assessments. 

PART was applied during the fiscal year 2004 budget cycle to 234 

“programs.”84 OMB’s four-point scale rated programs as “effective,” 

“moderately effective,” “adequate,” or “ineffective” based on program 

design, strategic planning, management, and results. Programs that do not 

have acceptable performance measures or have not yet collected 

performance data generally received a fifth rating of “results not 

demonstrated.” In the fiscal year 2004 President’s budget request, OMB 

rated 50 percent of PART-assessed programs as “results not demonstrated” 

because OMB found that the programs did not have adequate performance 

goals and/or data to gauge program performance were not available. The 

administration plans to review approximately one-fifth of all federal 

programs every year, so that every program will have been evaluated using 

PART by the fiscal year 2008 budget submission. 

84There is no consistent definition for the term “program.” For purposes of PART, the unit of 

analysis (program) should have a discrete level of funding clearly associated with it. 

Page 47 GAO-03-1062 FFMIA FY 2002 Results 
PART could be useful in focusing discussions about progress toward 

planned performance; about what progress has been made toward 

achieving specific program goals and objectives; and about what tools and 

strategies may be used to bring about improvements. Furthermore, 

performance budgeting should not be expected to provide the answers to 

resource allocation questions in some automatic or formula-driven 

process. Because budgeting is the allocation of resources, it involves 

setting priorities—making choices among competing claims. Performance 

information is an important factor, but it cannot substitute for difficult 

political choices. It can, however, help move the debate to a more 

informed plane—one in which the focus is on competing claims and 

priorities. As OMB has stated, “The PART serves its purpose if it produces 

an honest starting point for spending decisions that take results seriously.” 

Competitive Sourcing Initiative 	 Among the factors that agencies must consider as they determine how best 

to meet their missions is whether the public or private sector would be the 

most appropriate provider of the services the government needs. As we 

recently testified,85 the government’s competitive sourcing process—set 

forth in OMB Circular A-76—has been difficult to implement and has 

profoundly impacted the morale of the federal workforce. Due to these 

difficulties, the Congress enacted legislation mandating a study of the 

government’s competitive sourcing process. In April 2002, following a 

yearlong study, the Commercial Activities Panel (CAP), chaired by the 

Comptroller General, reported its findings on competitive sourcing in the 

federal government. The report lays out 10 sourcing principles and several 

recommendations, which provide a road map for improving sourcing 

decisions across the federal government. On May 29, 2003, OMB issued a 

revised Circular A-76 to simplify and improve the procedures for evaluating 

public and private sources. Overall, the revised circular is generally 

consistent with the CAP principles and recommendations. 

Implementing the revised circular, however, will likely be challenging. 

Agencies will need to consider how competitive sourcing relates to the 

other four PMA crosscutting initiatives. For example, accurate cost 

information from financial management systems and other sources clearly 

will be needed to make reliable cost calculations in conducting publicprivate competitions. 

85GAO-03-1022T. 

Page 48 GAO-03-1062 FFMIA FY 2002 Results 
DOD has been at the forefront of federal agencies in using the A-76 process 

and, since the mid-to-late 1990s, we have tracked DOD’s progress in 

implementing its A-76 program. While the revised circular includes a major 

section on calculating public-private competition costs, DOD’s experiences 

with public-private competitions suggest important lessons on financial 

calculations that agencies should consider as they implement their 

competitive sourcing initiatives.86 Notably, we have found that costs and 

resources required for the competitions were underestimated, and 

determining and maintaining reliable estimates of savings were difficult. 

In addition, DOD’s IG recently issued a report87 regarding errors in a 

public/private competition for the department’s military retired and 

annuitant pay functions. Although DOD awarded the contract to a private 

contractor, more accurate cost estimates may have led to a different 

decision. The cost estimate for performing this function in-house included 

$33.7 million of overhead costs. In calculating this estimate, DOD followed 

OMB Circular A-76 guidance that required the department to use the 

standard 12 percent cost factor for overhead costs. This was because DOD 

had not developed and submitted for OMB approval a reliable overhead 

factor for the department. The DOD IG stated that using the mandatory 

overhead factor affected the results of the competition because a reduced 

overhead cost factor would have lowered the in-house cost estimate. 

According to the IG, two of the main premises of OMB Circular A-76 cost 

comparison studies are fairness of the competitions and achieving realistic 

cost savings. These premises can only be achieved when supportable cost 

data are used. 

Strategic Human Capital People are an agency’s most important organizational asset, and strategic 

Management	 human capital management should be the centerpiece of any serious 

change management initiative or any effort to transform the cultures of 

government agencies. One step in meeting the government’s human 

86U.S. General Accounting Office, Competitive Sourcing: Challenges in Expanding A-76 

Governmentwide, GAO-02-498T (Washington, D.C.: Mar. 6, 2002). 

87Office of the Inspector General, Department of Defense, Infrastructure and 

Environment: Public/Private Competition for the Defense Finance and Accounting 

Service Military Retired and Annuitant Pay Functions, D-2003-056 (Mar. 21, 2003). 

Page 49 GAO-03-1062 FFMIA FY 2002 Results 
capital challenges is for agency leaders to identify and make use of all the 

appropriate administrative authorities available to them to manage their 

people both effectively and equitably. As we reported,88 much of the 

authority agency leaders need to manage human capital strategically is 

already available under current laws and regulations, as recognized by 

PMA. 

Another step in meeting the government’s human capital challenges is for 

policymakers to continue to pursue incremental legislative reforms to give 

agencies additional tools and flexibilities to hire, manage, and retain the 

human capital they need, particularly in critical operations. 

As more agency systems are automated and integrated, those working in 

the federal financial management community will require new skills. In its 

recent final report,89 JFMIP mentioned a skill imbalance as one of the 

challenges facing today’s financial management workforce. Specifically, 

the federal financial management workforce will shift from primarily 

transaction processing support to performing multiskilled analysis for 

decision making. According to JFMIP, to meet this skill imbalance, 

agencies must not only acquire the right skills, but must develop them. One 

of several ways to do this is to design a broader financial management 

career concept to support the new culture. 

Proud To Be Initiative	 Specific goals to be achieved by July 1, 2004, have been established for 

each of the five crosscutting initiatives under the “Proud To Be” initiative. 

According to an April 2003 memorandum from the OMB Deputy Director 

for Management-designate, progress on the PMA had reached a point 

where it is appropriate to think about where the administration would be 

proud to be a year or so from now, after 3 full years of implementing the 

PMA. To begin this effort, the owners90 of the five crosscutting initiatives 

assessed where he/she would be “proud to be” on July 1, 2004. For 

example, for the improved financial performance initiative, specific goals 

88U.S. General Accounting Office, Management Reform: Continuing Progress in 

Implementing Initiatives in the President’s Management Agenda, GAO-03-556T 

(Washington, D.C.: Mar. 26, 2003). 

89Joint Financial Management Improvement Program, The Federal Financial Management 

Workforce Of the Future--Building a World Class Financial Workforce (September 2003). 

90The owner of the improved financial performance initiative is Linda M. Springer, 

Controller, Office of Federal Financial Management, Office of Management and Budget. 

Page 50 GAO-03-1062 FFMIA FY 2002 Results 
include (1) 50 percent of agencies completing their fiscal year 2003 

financial statement audits by November 15, 2003, (2) all CFO Act agencies, 

except for DOD, having unqualified audit opinions on their fiscal year 2003 

financial statements, and (3) financial audits for fiscal year 2003 achieving 

a 50 percent reduction in material weaknesses. 

Financial Performance Metrics	 The CFO Council has developed a draft list of financial performance 

metrics to be reviewed monthly for all agencies. The financial performance 

metrics under consideration include (1) reconciled and unreconciled 

balances relating to fund balance with Treasury accounts, (2) delinquent 

accounts receivable from the public, (3) purchase and travel card 

delinquency trends, and (4) electronic payments. According to OMB 

officials, an online system has been developed to capture this information 

and the agency-level metrics reported will roll up into governmentwide 

metrics. 

Executive Branch Management As mentioned previously, the administration assesses agency status91 in 

Scorecard	 achieving the standards for success for each of the five crosscutting 

initiatives using a grading system of red, yellow, and green.92 It also 

assesses progress93 using a similar “stoplight” system.94 Although we 

collaborated in some cases with OMB and the lead agencies regarding the 

broad standards for success, we have not had the opportunity to review the 

more specific criteria that OMB uses to assess each agency’s progress on 

these initiatives nor have we examined the specific evidence that OMB 

used to assess the agency’s accomplishments. Table 1 shows the Scorecard 

status and progress scores for the improved financial performance 

initiative at the CFO Act agencies starting with the December 2002 

scorecard. 

91The “status” is assessed against the standards of success developed for each initiative and 

published in the fiscal year 2003 budget. 

92As defined by OMB, green is the appropriate score when all of the standards for success 

are met. Yellow is the score given when some, but not all, of the criteria have been achieved. 

Red is given when there are any one of a number of serious flaws. 

93The administration assesses “progress” on a case-by-case basis against the deliverables 

and timelines, established for the five initiatives, agreed upon with each agency. 

94As defined by OMB, green is the appropriate score when implementation is occurring 

according to plans. Yellow is given when some slippage or other issues requiring 

adjustment by the agency is needed to achieve the initiative objectives on a timely basis. 

The red score is given when the initiative is in serious jeopardy and the objectives are 

unlikely to be realized unless there is significant management intervention. 

Page 51 GAO-03-1062 FFMIA FY 2002 Results 
Table 1: Agency Status and Progress Scores for the Improved Financial 

Performance Initiative 

December 2002 

scorecard 

March 2003 

scorecard 

June 2003 

scorecard 

Score Status Progress Status Progress Status Progress 

Red 15 2 15 1 15 

Yellow 6 2 6 3 4 

Green 1 18 1 18 3 

Total 22 22 22 22 22 

Source: GAO analysis of the OMB Executive Branch Management Scorecards for three quarters. 

Note: The Federal Emergency Management Agency, which was consolidated into DHS, and NRC 

were not scored. While DHS received red status scores in improving financial performance as of 

December 31, 2002, and March 31, 2003, the department was scored as green in progress for those 

two quarters. 

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

management and performance, including financial management 

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

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

lead to sustained focus and demonstrable improvements. This will depend 

on continued efforts to assess progress and maintain accountability to 

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

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

this approach to be credible and effective in providing incentives that 

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

challenges the federal government faces, such as improving financial 

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

attention. 

Conclusions	 The ultimate objective of FFMIA is to ensure that agency financial 

management systems routinely provide reliable, useful, and timely financial 

information, not just at year-end or for financial statements, so that 

government leaders will be better positioned to invest resources, reduce 

costs, oversee programs, and hold agency managers accountable for the 

efficiency of their programs. To achieve the financial management 

improvements envisioned by the CFO Act, FFMIA, and more recently, the 

PMA, agencies need to modernize their financial management systems to 

generate reliable, useful, and timely financial information throughout the 

year and at year-end. Meeting the requirements of FFMIA presents longstanding, significant challenges that will be attained only through time, 

Page 52 GAO-03-1062 FFMIA FY 2002 Results 

0 

2 

20 

22 
investment, and sustained emphasis on correcting deficiencies in federal 

financial management systems. 

To provide positive assurance when reporting on compliance with FFMIA, 

auditors need to perform detailed audit procedures that are more 

comprehensive than those necessary to render an opinion in a financial 

statement audit. Such an assessment of an agency’s financial management 

system is essential to improving the performance, productivity, and 

efficiency of federal financial management and achieving the PMA. If 

auditors do more comprehensive testing for FFMIA compliance, as 

described in the GAO/PCIE FAM, they will be able to provide positive 

assurance when reporting on substantial compliance with FFMIA, which is 

what we believe the law requires. Therefore, we reaffirm our prior 

recommendation that OMB require agency auditors to provide a statement 

of positive assurance when reporting an agency’s systems to be in 

substantial compliance with FFMIA. While the current language that 

auditors are using to report substantial compliance with FFMIA may have 

useful applications, it is not relevant or appropriate given the requirements 

of FFMIA. The term “disclosed no instances” carries a commonly accepted 

and well-known interpretation among the audit community that only 

limited testing is required because the auditor is not giving an opinion on 

whether the systems are substantially compliant. However, our concern is 

that this type of reporting may give the general public the false impression 

that the systems have been found to be substantially compliant. We also 

reaffirm our other prior recommendation for OMB to explore further 

clarification of the definition of “substantial compliance” in its FFMIA 

guidance to encourage consistent reporting among agency auditors. As we 

stated95 last year, auditors we interviewed had concerns about providing 

positive assurance in reporting on agency systems’ FFMIA compliance 

because of a need for clarification regarding the meaning of substantial 

compliance. 

Agencies that do not have integrated financial systems typically must 

expend major efforts and resources to develop information that their 

systems should be able to provide on a daily and recurring basis. Across 

government, agencies have many efforts underway to implement or 

upgrade financial systems to alleviate long-standing weaknesses in 

financial management. However, the size and complexity of many federal 

agencies and the discipline needed to upgrade or replace their financial 

95GAO-03-31. 

Page 53 GAO-03-1062 FFMIA FY 2002 Results 
management systems present a significant challenge. While progress 

continues to be made to improve financial management systems, for some 

agencies there is a long way to go. To be successful, agencies need to 

identify the root causes as to why systems have these continuing financial 

management weaknesses. 

The widespread systems problems facing the federal government need 

sustained management commitment at the highest levels of government. 

Today, we are seeing a strong commitment from the President, the JFMIP 

Principals, and the secretaries of major departments, such as DOD—which 

has taken positive steps to transform its business operations and systems— 

to ensuring that needed modernization efforts come to fruition. This 

commitment is critical to the success of these efforts underway, as well as 

those still in a formative stage, to achieve the goals of the CFO Act and 

FFMIA. 

Agency Comments and 

Our Evaluation 

In written comments (reprinted in app. VI) on a draft of this report, OMB 

agreed with our view that financial management success encompasses 

more than agencies receiving unqualified opinions on their financial 

statements. However, as indicated by its comments, OMB and GAO 

continue to have a philosophical difference as to the breadth and nature of 

activities related to FFMIA compliance. In discussing FFMIA compliance, 

OMB focuses on the compliance requirements of FFMIA. We have a 

broader view when considering agency systems’ FFMIA compliance. From 

our viewpoint, the primary purpose of FFMIA is to ensure that agency 

financial management systems routinely provide reliable, useful, and timely 

financial information for managerial decision making on a day-to-day basis. 

With such information, government leaders will be better positioned to 

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

managers accountable for the way they run government programs. By 

enacting FFMIA, Congress envisioned that agency managers would have 

necessary financial information to measure performance on an ongoing 

basis rather than just at year-end. Financial management systems’ 

compliance with federal financial management systems requirements, 

applicable accounting standards, and the SGL at the transaction level are 

the building blocks to help achieve these goals. 

Specifically, OMB disagreed with our recommendation that OMB require 

agency auditors to provide a statement of positive assurance when 

reporting that agency systems substantially comply with FFMIA. OMB 

stated that, in its view, positive assurance does not measure the quality or 

Page 54 GAO-03-1062 FFMIA FY 2002 Results 
usefulness of the financial information. To the contrary, positive assurance 

does provide a more meaningful measure of the quality and usefulness of 

the financial information by providing a higher standard for the auditors’ 

FFMIA assessment. When providing negative assurance with FFMIA, 

auditors state that nothing came to their attention indicating that these 

agencies’ financial management systems did not substantially meet FFMIA 

requirements. Providing positive assurance, as we believe the law requires, 

means that the auditors must report unequivocally whether the agency 

financial management systems substantially comply with the act’s 

requirements. OMB also pointed out that preliminary data suggest such an 

additional reporting burden would raise audit costs without a 

commensurate improvement in financial information. As discussed in the 

FAM, there are a number of techniques auditors could use to minimize the 

burden and associated cost of providing positive assurance. For example, 

under 31 U.S.C. 3512(c),(d) (commonly referred to as the Federal 

Managers’ Financial Integrity Act of 1982 (FIA)), agency management is 

responsible for systematically developing, assessing, and reporting on 

internal controls and financial management systems. Auditors can review 

the related FIA documentation to determine the degree of reliance that can 

be placed on management’s FIA process. Depending on the thoroughness 

and completeness of the annual FIA assessment of agency financial 

management systems done by management, auditors may not need to 

significantly increase their workload to provide positive assurance. 

In its comments, OMB also stated that FFMIA compliance is determined by 

the agency head, after considering all relevant information, including the 

results of the independent audit. While we agree that the law requires 

agency heads to make an FFMIA determination, the auditor’s FFMIA 

assessment is a key element of this FFMIA determination due to auditor 

independence. The act specifically states that the determination should be 

based on a review of the auditor’s report on the applicable agencywide 

audited financial statements as well as other information the agency head 

considers relevant and appropriate. Moreover, as the legislative history 

shows, Congress intended to use the financial statement audit process to 

assure that FFMIA’s requirements are implemented and maintained in 

agency financial management systems. As with financial statement audits, 

an auditor’s FFMIA assessment provides an objective and independent 

view of an agency systems’ compliance with FFMIA. 

Page 55 GAO-03-1062 FFMIA FY 2002 Results 
OMB, in reference to our recommendation that it explore further 

clarifications of the definition of “substantial compliance” to help ensure 

the consistent application of this term, suggested that clear performance 

and results standards are better at promoting such consistency. OMB 

added that it will consider our recommendation in that context in any 

future policy and guidance updates. As we previously reported,96 auditors 

we interviewed that performed FFMIA assessments saw a need for 

clarification of the meaning of substantial compliance to help them 

perform the assessments. 

OMB also stated that the report overlooks progress agencies have made 

across all areas of IT security performance measures. Similarly, in its fiscal 

year 2002 report to the Congress, OMB reported that the federal 

government had made significant strides in addressing serious and 

pervasive IT security problems, but that much work remained. However, 

our analyses of governmentwide performance measures showed more 

limited progress. Further, our analyses of individual agency reports 

showed that significant challenges remained in implementing information 

security requirements. OMB also commented that this progress has been 

demonstrated in the federal government’s general success in withstanding 

malicious code activity. As we recently testified,97 the federal government 

has taken several steps to address security vulnerabilities that affect 

federal agency systems, but we identified additional steps that can be taken 

to address software vulnerabilities. 

In its comments, OMB stated that we should limit the scope of this report 

to agencies’ efforts to implement and maintain financial systems that 

comply with the act in fulfilling our statutory requirement to report 

annually on FFMIA compliance. We disagree with OMB’s view that this 

report includes considerable information that is not germane to our 

statutory reporting requirements. To the contrary, the governmentwide 

financial management improvement efforts, discussed in our report, have a 

direct impact on agency systems’ compliance with FFMIA and provide 

additional context on the importance of financial management systems in 

achieving certain initiatives. For example, the e-payroll effort, part of the egov initiative, if successful, should substantially reduce the number of 

96GAO-03-31. 

97U.S. General Accounting Office, Information Security: Effective Patch Management Is 

Critical to Mitigating Software Vulnerabilities, GAO-03-1138T (Washington, D.C.: Sept. 10, 

2003). 

Page 56 GAO-03-1062 FFMIA FY 2002 Results 
individual agency payroll systems, which affects agencies’ financial 

systems architecture and the flow of information through their financial 

management systems. Similarly, as we discuss in the report, PART 

represents a step toward more structured involvement of program and 

performance analysis in the budget. This initiative is dependent upon 

meaningful links between performance results and resources consumed 

that are supported by reliable, useful, and timely underlying information, 

including financial data. In our view, it will be difficult, if not impossible, to 

achieve success with these governmentwide financial management 

improvement efforts without the modernization of agency financial 

systems envisioned by the CFO Act and FFMIA. 

OMB and several agencies also provided other technical comments that we 

incorporated as appropriate. 

We are sending copies of this report to the Chairman and Ranking Minority 

Member, Subcommittee on Financial Management, the Budget, and 

International Security, Senate Committee on Governmental Affairs; and to 

the Chairman and Ranking Minority Member, Subcommittee on 

Government Efficiency and Financial Management, House Committee on 

Government Reform. We are also sending copies to the Director of the 

Office of Management and Budget, the Secretary of the Department of 

Homeland Security, the heads of the 23 CFO Act agencies, and agency 

CFOs and IGs. Copies will also be made available to others upon request. 

This report was prepared under the direction of Sally E. Thompson, 

Director, Financial Management and Assurance, who may be reached at 

(202) 512-9450 or by e-mail at thompsons@gao.gov if you have any 

questions. Staff contacts and other key contributors to this report are 

listed in appendix VII. 

David M. Walker 

Comptroller General 

of the United States 

Page 57 GAO-03-1062 FFMIA FY 2002 Results 
Appendix I 

Requirements and Standards Supporting 

Federal Financial Management 

Financial Management 

Systems Requirements 

The policies and standards prescribed for executive agencies to follow in 

developing, operating, evaluating, and reporting on financial management 

systems are defined in OMB Circular A-127, Financial Management 

Systems. The components of an integrated financial management system 

include the core financial system,1

 managerial cost accounting system, and 

administrative and programmatic systems. Administrative systems are 

those that are common to all federal agency operations2

 and programmatic 

systems are those needed to fulfill an agency’s mission. JFMIP has issued 

federal financial management systems requirements (FFMSR)3

 for the core 

financial system and managerial cost accounting system, and is in the 

process of issuing these requirements for the administrative and 

programmatic systems. Appendix II lists the federal financial management 

systems requirements published to date. Figure 6 is the JFMIP model that 

illustrates how these systems interrelate in an agency’s overall systems 

architecture. 

1

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

payments, receivables, and certain basic cost functions. JFMIP’s most recent update of its 

core financial system requirements publication was issued in November 2001. 

2

Examples of administrative systems include budget, acquisition, travel, property, and 

human resources and payroll. 

3

Circular A-127 references the series of publications entitled Federal Financial Management 

Systems Requirements, issued by JFMIP, as the primary source of governmentwide 

requirements for financial management systems. 

Page 58 GAO-03-1062 FFMIA FY 2002 Results 
Appendix I 

Requirements and Standards Supporting 

Federal Financial Management 

Figure 6: Agency Systems Architecture 

Departmental Execut iv e Information System

Workstation S upport Tools

Guaranteed 

Loan 

System 

Direct 

Loan 

System 

Seized 

Property 

& Forfeited 

Asset 

Systems 

Travel 

System Human Resources 

& Payroll 

System 

Non-financial 

Systems 

Budget 

Formulation 

System 

Acquisition 

System 

Property 

Management 

Systems 

Inventory 

System 

Grant Financial 

System 

Insurance Claim 

System 

Financial 

Reporting 

System 

Core 

Financial 

System 

Managerial CostAccountni g 

Revenue 

System

Benefit System 

Source: JFMIP. 

OMB Circular A-127 requires agencies to purchase commercial off-the-shelf 

(COTS) software that has been tested and certified through the JFMIP 

software certification process when acquiring core financial systems. 

JFMIP’s certification process, however, does not eliminate or significantly 

reduce the need for agencies to develop and conduct a comprehensive 

testing effort to ensure that the COTS software meets their requirements. 

Moreover, according to JFMIP, core financial systems certification does not 

mean that agencies that install these packages will have financial 

management systems that are compliant with FFMIA. Many other factors 

can affect the capability of the systems to comply with FFMIA, including 

modifications made to the JFMIP-certified core financial management 

systems software, and the validity and completeness of data from feeder 

systems. 

Page 59 GAO-03-1062 FFMIA FY 2002 Results 
Appendix I 

Requirements and Standards Supporting 

Federal Financial Management 

Federal Accounting 

Standards 

The Federal Accounting Standards Advisory Board (FASAB)4 promulgates 

federal accounting standards that agency CFOs use in developing financial 

management systems and preparing financial statements. FASAB develops 

the appropriate accounting standards after considering the financial and 

budgetary information needs of the Congress, executive agencies, and 

other users of federal financial information and comments from the public. 

FASAB forwards the standards to the three Sponsors—the Comptroller 

General, the Secretary of the Treasury, and the Director of OMB—for a 90-

day review. If there are no objections during the review period, the 

standards are considered final and FASAB publishes them on its Web site 

and in print. 

The American Institute of Certified Public Accountants has recognized the 

federal accounting standards promulgated by FASAB as being generally 

accepted accounting principles for the federal government. This 

recognition enhances the acceptability of the standards, which form the 

foundation for preparing consistent and meaningful financial statements 

both for individual agencies and the government as a whole. Currently, 

there are 25 statements of federal financial accounting standards (SFFAS) 

and 4 statements of federal financial accounting concepts (SFFAC).5 The 

concepts and standards are the basis for OMB’s guidance to agencies on the 

form and content of their financial statements and for the government’s 

consolidated financial statements. Appendix III lists the concepts, 

standards, and interpretations6

 along with their respective effective dates. 

4

In October 1990, the Secretary of the Treasury, the Director of OMB, and the Comptroller 

General established FASAB to develop a set of generally accepted accounting standards for 

the federal government. Effective July 1, 2002, FASAB is comprised of six nonfederal or 

public members and the three Sponsors. Moreover, effective October 1, 2003, FASAB will 

also include one member from the Congressional Budget Office. 

5

Accounting standards are authoritative statements of how particular types of transactions 

and other events should be reflected in financial statements. SFFACs explain the objectives 

and ideas upon which FASAB develops the standards. 

6

An interpretation is a document of narrow scope that provides clarifications of original 

meaning, additional definitions, or other guidance pertaining to an existing federal 

accounting standard. 

Page 60 GAO-03-1062 FFMIA FY 2002 Results 
Appendix I 

Requirements and Standards Supporting 

Federal Financial Management 

FASAB’s Accounting and Auditing Policy Committee (AAPC)7 assists in 

resolving issues related to the implementation of accounting standards. 

AAPC’s efforts result in guidance for preparers and auditors of federal 

financial statements in connection with implementation of accounting 

standards and the reporting and auditing requirements contained in OMB’s 

Form and Content of Agency’s Financial Statements Bulletin and Audit 

Requirements for Federal Financial Statements Bulletin. To date, AAPC 

has issued five technical releases, which are listed in appendix IV along 

with their release dates. 

Standard General Ledger	 The SGL was established by an interagency task force under the direction 

of OMB and mandated for use by agencies in OMB and Treasury regulations 

in 1986. The SGL promotes consistency in financial transaction processing 

and reporting by providing a uniform chart of accounts and pro forma 

transactions used to standardize federal agencies’ financial information 

accumulation and processing throughout the year, enhance financial 

control, and support budget and external reporting, including financial 

statement preparation. For example, agency use of the SGL accounts and 

OMB’s new intragovernmental business rules for standardizing 

intragovernmental activity and balances are key to removing one of the 

material weaknesses that GAO has reported on the governmentwide 

consolidated statements since fiscal year 1997. The SGL is intended to 

improve data stewardship throughout the federal government, enabling 

consistent reporting at all levels within the agencies and providing 

comparable data and financial analysis at the governmentwide level.8 

Internal Control Standards	 The Congress enacted legislation, 31 U.S.C. 3512(c),(d) (commonly 

referred to as the Federal Managers’ Financial Integrity Act of 1982 (FIA)), 

to strengthen internal controls and accounting systems throughout the 

federal government, among other purposes. Issued pursuant to FIA, the 

Comptroller General’s Standards for Internal Control in the Federal 

7

In 1997, FASAB, in conjunction with OMB, Treasury, GAO, the CFO Council, and the 

President’s Council on Integrity and Efficiency, established AAPC to assist the federal 

government in improving financial reporting. 

8

SGL guidance is published in the Treasury Financial Manual. Treasury’s Financial 

Management Service is responsible for maintaining the SGL and answering agency inquiries. 

Page 61 GAO-03-1062 FFMIA FY 2002 Results 
Appendix I 

Requirements and Standards Supporting 

Federal Financial Management 

Government9 provides the standards that are directed at helping agency 

managers implement effective internal control, an integral part of 

improving financial management systems. Internal control is a major part 

of managing an organization and comprises the plans, methods, and 

procedures used to meet missions, goals, and objectives. In summary, 

internal control, which under OMB’s guidance for FIA is synonymous with 

management control, helps government program managers achieve desired 

results through effective stewardship of public resources. 

Effective internal control also helps in managing change to cope with 

shifting environments and evolving demands and priorities. As programs 

change and agencies strive to improve operational processes and 

implement new technological developments, management must 

continually assess and evaluate its internal control to ensure that the 

control activities being used are effective and updated when necessary. 

9

U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3 (Washington, D.C.: November 1999). 

Page 62 GAO-03-1062 FFMIA FY 2002 Results 
Appendix II 

Publications in the Federal Financial 

Management Systems Requirements Series 

FFMSR document Issue date 

FFMSR-0 Framework for Federal Financial Management Systems January 1995 

FFMSR-7 Inventory System Requirements June 1995 

FFMSR-8 Managerial Cost Accounting System Requirements February 1998 

JFMIP-SR-01-02 Core Financial System Requirements November 2001 

JFMIP-SR-99-5 Human Resources & Payroll Systems April 1999 

Requirements 

JFMIP-SR-99-8 Direct Loan System Requirements June 1999 

JFMIP-SR-99-9 Travel System Requirements July 1999 

JFMIP-SR-99-14 Seized Property and Forfeited Asset Systems December 1999 

Requirements 

JFMIP-SR-00-01Guaranteed Loan System Requirements March 2000 

JFMIP-SR-00-3 Grant Financial System Requirements June 2000 

JFMIP-SR-00-4 Property Management Systems Requirements October 2000 

JFMIP-SR-01-01 Benefit System Requirements September 2001 

JFMIP-SR-02-02 Acquisition/Financial Systems Interface June 2002 

Requirements 

JFMIP-SR-03-01 Revenue System Requirements January 2003 

JFMIP-SR-03-02 Inventory, Supplies and Materials System August 2003 

Requirements 

Page 63 GAO-03-1062 FFMIA FY 2002 Results 
Appendix III 

Statements of Federal Financial Accounting 

Concepts, Statements of Federal Financial 

Accounting Standards, and Interpretations 

Concepts 

SFFAC No. 1 Objectives of Federal Financial Reporting 

SFFAC No. 2 Entity and Display 

SFFAC No. 3 Management’s Discussion and Analysis 

SFFAC No. 4 Intended Audience and Qualitative Characteristics for the Consolidated 

Financial Report of the United States Government 

Effective 

for fiscal 

Standards year

a 

SFFAS No. 1 Accounting for Selected Assets and Liabilities 1994 

SFFAS No. 2 Accounting for Direct Loans and Loan Guarantees 1994 

SFFAS No. 3 Accounting for Inventory and Related Property 1994 

SFFAS No. 4 Managerial Cost Accounting Concepts and Standards 1998 

SFFAS No. 5 Accounting for Liabilities of the Federal Government 1997 

SFFAS No. 6 Accounting for Property, Plant, and Equipment 1998 

SFFAS No. 7 Accounting for Revenue and Other Financing Sources 1998 

SFFAS No. 8 Supplementary Stewardship Reporting 1998 

SFFAS No. 9 Deferral of the Effective Date of Managerial Cost Accounting 1998 

Standards for the Federal Government in SFFAS No. 4 

SFFAS No. 10 Accounting for Internal Use Software 2001 

SFFAS No. 11 Amendments to Accounting for Property, Plant, and 1999 

Equipment—Definitional Changes 

SFFAS No. 12 Recognition of Contingent Liabilities Arising from Litigation: 1998 

An Amendment of SFFAS No. 5, Accounting for Liabilities of the Federal 

Government 

SFFAS No. 13 Deferral of Paragraph 65-2—Material Revenue-Related 1999 

Transactions Disclosures 

SFFAS No. 14 Amendments to Deferred Maintenance Reporting 1999 

SFFAS No. 15 Management’s Discussion and Analysis 2000 

SFFAS No. 16 Amendments to Accounting for Property, Plant, and 2000 

Equipment 

SFFAS No. 17 Accounting for Social Insurance 2000 

SFFAS No. 18 Amendments to Accounting Standards for Direct Loans and 2001 

Loan Guarantees in SFFAS No. 2 

Page 64 GAO-03-1062 FFMIA FY 2002 Results 
Appendix III 

Statements of Federal Financial Accounting 

Concepts, Statements of Federal Financial 

Accounting Standards, and Interpretations 

(Continued From Previous Page) 

Effective 

for fiscal 

Standards year

a 

SFFAS No. 19 Technical Amendments to Accounting Standards for Direct 2003 

Loans and Loan Guarantees in SFFAS No. 2 

SFFAS No. 20 Elimination of Certain Disclosures Related to Tax Revenue 2001 

Transactions by the Internal Revenue Service, Customs, and Others 

SFFAS No. 21 Reporting Corrections of Errors and Changes in Accounting 2002 

Principles 

SFFAS No. 22 Change in Certain Requirements for Reconciling Obligations 2001 

and Net Cost of Operations 

SFFAS No. 23 Eliminating the Category National Defense Property, Plant, 2003 

and Equipment 

SFFAS No. 24 Selected Standards for the Consolidated Financial Report of 2002 

the United States Government 

SFFAS No. 25 Reclassification of Stewardship Responsibilities and 2005 

Eliminating the Current Services Assessment 

a

Effective dates do not apply to Statements of Federal Financial Accounting Concepts and 

Interpretations. 

Interpretations 

No. 1 Reporting on Indian Trust Funds 

No. 2 Accounting for Treasury Judgment Fund Transactions 

No. 3 Measurement Date for Pension and Retirement Health Care Liabilities 

No. 4 Accounting for Pension Payments in Excess of Pension Expense 

No. 5 Recognition by Recipient Entities of Receivable Nonexchange Revenue 

No. 6 Accounting for Imputed Intra-departmental Costs 

Page 65 GAO-03-1062 FFMIA FY 2002 Results 
Appendix IV 

AAPC Technical Releases


AAPC release 

Technical release date 

TR-1 Audit Legal Letter Guidance March 1, 1998 

TR-2 Environmental Liabilities Guidance March 15, 1998 

TR-3 Preparing and Auditing Direct Loan and Loan Guarantee July 31, 1999 

Subsidies Under the Federal Credit Reform Act 

TR-4 Reporting on Non-Valued Seized and Forfeited Property July 31, 1999 

TR-5 Implementation Guidance on SFFAS No. 10: Accounting for May 14, 2001 

Internal Use Software 

Page 66 GAO-03-1062 FFMIA FY 2002 Results 
Appendix V 

Checklists for Reviewing Systems under the 

Federal Financial Management Improvement 

Act 

Checklist Issue date 

GAO/AIMD-98-21.2.1 Framework for Federal Financial Management May 1998 

System Checklist 

GAO/AIMD-00-21.2.2 Core Financial System Requirements Checklist February 2000 

GAO/AIMD-00-21.2.3 Human Resources and Payroll Systems March 2000 

Requirements Checklist 

GAO/AIMD-98-21.2.4 Inventory System Checklist May 1998 

GAO/01-99G Seized Property and Forfeited Assets Systems October 2000 

Requirements Checklist 

GAO/AIMD-21-2.6 Direct Loan System Requirements Checklist April 2000 

GAO/AIMD-21.2.8 Travel System Requirements Checklist May 2000 

GAO/AIMD-99-21.2.9 System Requirements for Managerial Cost January 1999 

Accounting Checklist 

GAO-01-371G Guaranteed Loan System Requirements Checklist March 2001 

GAO-01-911G Grant Financial System Requirements Checklist September 2001 

GAO-02-171G Property Management Systems Requirements December 2001 

Checklist 

GAO-02-762G Benefit System Requirements (Exposure Draft) September 2002 

Page 67 GAO-03-1062 FFMIA FY 2002 Results 
Appendix VI 

Comments from the Office of Management 

and Budget 

Page 68 GAO-03-1062 FFMIA FY 2002 Results 
Appendix VI


Comments from the Office of Management


and Budget


Page 69 GAO-03-1062 FFMIA FY 2002 Results 
Appendix VII 

GAO Contacts and Staff Acknowledgments


GAO Contacts	 Sally E. Thompson, (202) 512-9450 

Kay L. Daly, (202) 512-9312 

Acknowledgments	 In addition to those named above, Debra S. David, Rosa R. Harris, 

Kristen A. Kociolek, Kelly A. Lehr, William S. Lowrey, Sandra S. Silzer, and 

Bridget A. Skjoldal made key contributions to this report. 

(193048) Page 70 GAO-03-1062 FFMIA FY 2002 Results 
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