a

GAO

United States General Accounting Office

Report to Congressional Committees

October 2002 FINANCIAL 

MANAGEMENT

FFMIA 

Implementation 

Necessary to Achieve 

Accountability

GAO-03-31
Why GAO Did This Study

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 at

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 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.

October 2002

FINANCIAL MANAGEMENT

FFMIA Implementation Necessary to

Achieve Accountability

The full report, including GAO's objectives, scope, methodology, and analysis is available at www.gao.gov/cgi-bin/getrpt?GAO-03-31. For additional

information about the report, contact Sally Thompson (202-512-9450 or by e-mail at thompsons@gao.gov).

Highlights of GAO-03-31 report to Congressional Committees

What GAO Recommends

GAO reaffirms its prior

recommendations that OMB

revise its FFMIA audit testing and

reporting guidance including

recommendations to

(1) provide a statement of

positive assurance when

reporting an agency’s

systems to be in

substantial compliance

with FFMIA, and

(2) emphasize the significance

of agencies’ ability to

provide cost management

information for measuring

the results of program

performance.

OMB agreed to reconsider

revising its audit guidance once

its overall federal financial

management policy is finalized.

United States General Accounting Office

What GAO Found

Since enactment of FFMIA in 1996, agencies have generally continued to

make progress to achieve compliance with the act. At the same time,

most agencies’ systems continue to have shortcomings. As shown in the

chart below, audit reports highlight 6 recurring problems that were

consistently reported at 20 agencies whose auditors concluded that

systems were not in compliance with one or more FFMIA requirements.

Problems Reported by Auditors for Fiscal Years 2000 and 2001

Following OMB’s reporting guidance, auditors for the remaining four

agencies provided negative assurance on compliance, meaning 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. 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 system

problems, and many initiatives are planned or underway to overhaul

financial management systems, including efforts to develop cost

management information which is key to measuring program

performance. Increasing attention from the highest levels of the federal

government is being targeted on improving financial management. The

President’s Management Agenda Fiscal Year 2002 included improved

financial performance as one of the five top governmentwide

management goals. The administration is aggressively pursuing

strategies to reform federal business practices, and has underscored the

need for financial management systems modernization.

G A O

Accountability Integrity Reliability

Highlights
Page i GAO-03-31 FFMIA FY 2001 Results

Contents

Letter 1

Results In Brief 2

Background 6

Scope and Methodology 13

Continued System Weaknesses Impair Financial Management 

Accountability 15

Crosscutting Reasons for Noncompliance Indicate Serious 

Problems Remain 17

Auditors Provided Negative Assurance as to Substantial

Compliance 28

Remediation Plans Have Improved 31

Agency Efforts to Implement New Financial Systems 36

Managerial Cost Information Is Critical for Implementing the 

President’s Management Agenda 40

Increasing Emphasis On Improving Financial Management from the 

Highest Levels of Government 43

Conclusions 47

Agency Comments And Our Evaluation 49

Appendixes

Appendix I: Publications in the Federal Financial Management Systems 

Requirements Series 51

Appendix II: Statements of Federal Financial Accounting Concepts, 

Standards, and Interpretations 52

Appendix III: AAPC Technical Releases 54

Appendix IV: Checklists for Reviewing Systems Under the Federal 

Financial Management Improvement Act 55

Appendix V: Comments From the Office of Management and Budget 56

Appendix VI: GAO Contacts and Staff Acknowledgments 57

GAO Contacts 57

Acknowledgments 57

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

2001 3

Figure 2: Framework for Providing Accountability and Good 

Management Information 8

Figure 3: Agency Systems Architecture 9

Figure 4: Auditors’ FFMIA Determinations for Fiscal Year 2001 16
Contents

Page ii GAO-03-31 FFMIA FY 2001 Results

Figure 5: Problems Reported by Auditors for Fiscal Years 2000 and 

2001 18

Figure 6: Results of Review of Fiscal Year 2000 Remediation 

Plans 33

Abbreviations

AAPC Accounting and Auditing Policy Committee

AID Agency for International Development

ARB Activity-Based Budgeting

ABC Activity-Based Costing

BLM Bureau of Land Management

CFO Chief Financial Officer

CIO Chief Information Officer

COTS Commercial Off-the-Shelf

DOD Department of Defense

DOT Department of Transportation

EPA Environmental Protection Agency

FAA Federal Aviation Administration

FAM Financial Audit Manual

FASAB Federal Accounting Standards Advisory Board

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

FMS Financial Management Service

GAO General Accounting Office

GISRA Government Information Security Reform Act

GMRA Government Management Reform Act

GPRA Government Performance and Results Act

GSA General Services Administration

HHS Health and Human Services

HUD Housing and Urban Development

HUDCAPS Housing and Urban Development’s Central Accounting and 

Program System

IFMS Integrated Financial Management System

IG Inspector General

IRS Internal Revenue Service

IT Information Technology

JFMIP Joint Financial Management Improvement Program
Contents

Page iii GAO-03-31 FFMIA FY 2001 Results

MIT Management Improvement Team

NASA National Aeronautics and Space Administration

NRC National Regulatory Commission

NSF National Science Foundation

OCFO Office of the Chief Financial Officer

OMB Office of Management and Budget

OPM Office of Personnel Management

PCIE President’s Council on Integrity and Efficiency

SBA Small Business Administration

SFFAC Statements of Federal Financial Accounting Concepts

SFFAS Statements of Federal Financial Accounting Standards

SGL Standard General Ledger

SSA Social Security Administration

USDA United States Department of Agriculture
Page 1 GAO-03-31 FFMIA FY 2001 Results

United States General Accounting Office

Washington, D.C. 20548

A

October 1, 2002 Letr

The Honorable Joseph I. Lieberman

Chairman

The Honorable Fred Thompson

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Dan Burton

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 24 major 

departments and agencies covered by the CFO Act to implement and 

maintain financial management systems that comply substantially with (1) 

federal financial management systems requirements, (2) applicable federal

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 2 GAO-03-31 FFMIA FY 2001 Results

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

Ledger (SGL)4

 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 sixth annual report, discusses (1) 

auditors’ FFMIA determinations and widespread systems problems that 

affect agency systems’ compliance with FFMIA, (2) issues related to 

auditors providing negative assurance as to substantial compliance with 

the act, (3) agency plans to bring their systems into compliance, (4) agency 

efforts to implement new financial management systems and the increasing 

importance of managerial cost information, and (5) the impact of the 

President’s Management Agenda and the Joint Financial Management 

Improvement Program (JFMIP) Principals5

 on improving federal financial 

management.

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

systems weaknesses. At the same time, the results of the fiscal year 2001 

FFMIA assessments performed 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 

problems indicate that, generally, agency management does not yet have 

the full range of information needed for accountability, performance 

reporting, and decision making. 

Auditors for 20 of the 24 CFO Act agencies reported that their agencies’

financial management systems did not comply substantially with certain 

FFMIA requirements. Auditors reported the same six types of problems in 

their fiscal year 2000 audit reports, as highlighted in figure 1. 

3

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).

4

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

are to use in all their financial systems. 

5

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

Office of Personnel Management (OPM), and the Comptroller General of the United States. 
Page 3 GAO-03-31 FFMIA FY 2001 Results

Figure 1: Problems Reported by Auditors for Fiscal Years 2000 and 2001

Source: GAO analysis of agency audit reports for fiscal years 2000 and 2001. We did not 

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

As a result of these 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 the end of the year through periodic cost surveys. 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, and report on performance.

Auditors for the remaining four agencies—the Departments of Energy and 

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

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

compliance for fiscal year 2001, meaning that while they do not opine as to 

13

16

14

8

12

19

14

13

12

8

14

20

Nonintegrated

 financial

 management

 systems

 Inadequate

reconciliation

 

procedures

Lack of 

 accurate

 and timely 

 reporting

Noncompliance

 

with the SGL

 Lack of 

adherence

 to federal

 accounting

 standards

 

Weak 

security over 

 information 

 systems

Agencies

Fiscal year 2000

Fiscal year 2001

0

4

8

12

16

20
Page 4 GAO-03-31 FFMIA FY 2001 Results

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, the auditor needs to provide positive 

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

financial management systems substantially comply with FFMIA. To 

provide positive assurance, more testing is necessary than that performed 

for the purposes of rendering an opinion on the financial statements. In this 

regard, OMB has not acted on our prior recommendations, but instead 

focused on new initiatives to promote improvements in agency financial 

management systems.

To address identified problems, FFMIA requires agencies to prepare 

remediation plans describing the actions they took or plan to take to 

overcome financial management systems problems and bring them into 

FFMIA compliance. At the time of our review, the most current remediation 

plans covered problems reported in fiscal year 2000 audit reports. Of the 19 

agencies6

 whose systems were reported as not in substantial compliance 

during fiscal year 2000, 15 prepared remediation plans. Our review of these 

15 remediation plans showed that, overall, the plans had improved 

somewhat over the fiscal year 1999 plans, although some plans still lacked 

fundamental elements such as staffing and funding resources required to 

complete the proposed corrective actions. A lack of substance in the plans, 

including associating resources to detailed corrective actions, can limit the 

likelihood of success in adequately implementing the corrective actions. To 

help address our prior recommendations related to inadequate remediation 

plans, OMB has implemented a multidisciplinary approach to provide 

additional expertise to the review and oversight to agencies’ plans.

Across government, agencies have many efforts underway to implement or 

upgrade financial systems to alleviate long-standing problems in financial 

management. A number of these agencies are in the implementation phases 

6

Agency management for two of the remaining four agencies did not prepare remediation 

plans because they determined that their systems did substantially comply with FFMIA. The 

other two agencies did not prepare remediation plans for fiscal year 2000 for other reasons. 
Page 5 GAO-03-31 FFMIA FY 2001 Results

of these projects, and other agencies are in the planning and design phases. 

Many of these new financial systems are commercial-off-the-shelf (COTS) 

packages sold by vendors whose software has been certified7

 by the JFMIP. 

However, JFMIP’s certification that a vendor’s software meets many of the 

core financial management system requirements is just one of the 

conditions that must be met before substantial compliance with FFMIA can 

be achieved. 

Increasing attention from the highest levels of the federal government is 

being targeted on improving federal financial management. The President’s 

Management Agenda Fiscal Year 2002 included improved financial 

performance as one of the five top governmentwide management goals. 

The administration is using what it refers to as the Executive Branch 

Management Scorecard to highlight agency progress in achieving the 

management and performance improvements embodied in the President’s 

Management Agenda. The JFMIP Principals have also actively developed 

short- and long-term strategies and plans necessary to address many of the 

financial management problems across government. For example, the 

Principals have agreed to criteria for measuring financial management 

success, accelerating financial statement reporting, and restructuring the 

Federal Accounting Standards Advisory Board (FASAB). The attention of 

these top leaders along with OMB’s continued aggressive pursuit of 

strategies to reform current federal business practices have underscored 

the need for financial management systems modernization and are 

essential to achieving federal financial management reform. 

We reaffirm several prior recommendations aimed at enhancing audit 

guidance and improving remediation plans. In commenting on a draft of 

this report, OMB generally agreed with our overall observations and 

conclusions that while many agencies are continuing to make progress, 

some agencies still have shortcomings in their financial management 

systems. Regarding our recommendation for OMB to change its audit 

guidance to require a statement of positive assurance on compliance with 

FFMIA, OMB stated that it is currently updating its financial management 

policy guidance and that once the update is completed, new performance 

and results-based criteria will be used in future FFMIA assessments. OMB 

also stated that once its overall financial management policy is finalized, it 

7

Under the auspices of OMB Circular A-127, JFMIP tests vendor COTS packages and 

certifies that they meet certain financial management system requirements for core 

financial systems. 
Page 6 GAO-03-31 FFMIA FY 2001 Results

will reconsider revising its audit guidance to address our recommendation. 

With regard to the lack of resource information in agency remediation 

plans, OMB agreed that stand-alone remediation plans do not necessarily 

contain resource information. However, OMB officials pointed out that 

remediation plan information, such as estimates of resources, is included in 

agency financial management plans, which are part of agency budget 

submissions. We did not have the agency budget submissions and therefore 

we could not determine whether the required resource information, not 

included in the stand-alone plans, was included in the budget submission 

information. 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.

Management Reform 

Legislation

FFMIA is part of a series of management reform legislation passed by the 

Congress over the past 2 decades. This series of legislation started with 31 

U.S.C. 3512 (c),(d), (the Federal Managers’ Financial Integrity Act of 1982 

(FIA)), which the Congress passed 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 Government8

 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 

8

U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3 (Washington, D.C.: November 1999).
Page 7 GAO-03-31 FFMIA FY 2001 Results

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. 

While agencies had achieved some success in identifying and correcting 

material internal control and accounting system weaknesses, their efforts 

to implement the FIA had not produced the results intended by the 

Congress.

Therefore, in the 1990s, the Congress passed additional management 

reform legislation to improve the general and financial management of the 

federal government. As shown in figure 2, the combinations of reforms 

ushered in by the (1) CFO Act, (2) Government Management Reform Act 

(GMRA) of 1994, (3) FFMIA, (4) Government Performance and Results Act 

of 1993 (GPRA), and (5) Clinger-Cohen Act of 1996, 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, thereby making it possible to better 

assess and improve the government’s effectiveness, financial condition, 

and operating performance.
Page 8 GAO-03-31 FFMIA FY 2001 Results

Figure 2: Framework for Providing Accountability and Good Management 

Information 

Source: GAO.

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. Circular A-127 references the series of publications entitled 

Federal Financial Management Systems Requirements (FFMSR), issued by 

JFMIP as the primary source of governmentwide requirements for financial 

management systems. JFMIP systems requirements, among other things, 

provide a framework for establishing integrated financial management 

systems to support program and financial managers. 

JFMIP’s Framework for Federal Financial Systems, issued in 1995, 

identified multiple components of a financial management system. The 

components of an integrated financial management system include the 

core financial system, managerial cost accounting system, and numerous 

programmatic and administrative systems. Figure 3 is the JFMIP model 

that illustrates how these systems interrelate in an agency’s overall systems 

architecture. 

Management

Reform

Legislation

CFO Act

Clinger-Cohen

GMRA

FFMIA

GPRA

Accountability

and good

management

information

Provides

impetus for

Strong financial

management

that provides

reliable, timely,

and useful

information for

decision makers

Yield

Fully integrated financial

management systems

Reliable, timely

financial statements

Effective

internal control

FIA
Page 9 GAO-03-31 FFMIA FY 2001 Results

Figure 3: Agency Systems Architecture

Source: JFMIP.

When FFMIA was enacted in 1996, JFMIP had issued requirement 

documents for the core financial system and six subsidiary systems. 

However, several of these documents needed updating to recognize 

recently enacted laws and regulatory revisions. Since 1998, JFMIP has been 

engaged in an intensive effort to update its system requirements 

documents. In November 2001, JFMIP updated its Core Financial System 

Requirements, previously issued in 1999. These requirements were 

clarified in some areas; new requirements were added to capture full cost 

and revenue to unique cost objects along with enhancing daily internal 

reports requirements. The updated requirements document is the basis of 

the redevelopment of the JFMIP core software qualification test. JFMIP is 

currently partnering with the CFO and Chief Information Officer (CIO) 

Councils to update its Framework for Federal Financial Management 

Systems. JFMIP also has a project underway to update the Inventory 

System Requirements document. Appendix I lists the current publications 

in the FFMSR series and their issue dates.
Page 10 GAO-03-31 FFMIA FY 2001 Results

JFMIP helps ensure that financial management system requirements and 

the vendor software remain aligned by testing vendor COTS packages for 

core financial systems and certifying that these packages meet certain core 

financial management system requirements. OMB policy requires that 

agencies acquiring core financial management systems use software that 

has been certified by JFMIP. Under the JFMIP testing process, software 

products are certified for 3 years and must then be retested by JFMIP. 

Other factors that affect FFMIA compliance include how the software 

package works in the agency’s environment, whether any customization is 

made to the software, the success of converting data from legacy systems 

to new systems, and the quality of transaction data in the feeder systems. 

Federal Accounting 

Standards

FASAB9 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 

Principals—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 22 statements of federal financial accounting standards 

(SFFAS) and 3 statements of federal financial accounting concepts

9

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 representatives of the three Principals.
Page 11 GAO-03-31 FFMIA FY 2001 Results

(SFFAC).10 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 II lists the 

concepts, standards, and interpretations11 along with their respective 

effective dates.

FASAB’s Accounting and Auditing Policy Committee (AAPC)12 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 released five technical releases, which are listed in appendix III 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. The SGL is intended to improve data stewardship 

throughout the government, enabling consistent reporting at all levels 

within the agencies and providing comparable data and financial analysis at 

the governmentwide level.13

10Accounting 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.

11An 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.

12In 1997, FASAB, in conjunction with OMB, Department of the Treasury (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.

13SGL guidance is published in the Treasury Financial Manual. Treasury’s Financial 

Management Service is responsible for maintaining the SGL and answering agency inquiries.
Page 12 GAO-03-31 FFMIA FY 2001 Results

Remediation Plans FFMIA requires an agency head to determine, based on a review of the 

auditor’s report on the agency’s financial statements and any other relevant 

information, whether the agency’s financial management systems 

substantially comply with the act. The agency head is required to make this 

determination no later than 120 days after (1) the receipt of the auditor’s 

report or (2) the last day of the fiscal year following the year covered by the 

audit, whichever comes first. If the agency head disagrees with the 

auditor’s determination that the systems do not substantially comply, the 

Director of OMB is to review the agency head’s determination and report to 

the appropriate committees of the Congress. If the agency head agrees that 

the systems do not substantially comply, FFMIA requires that the agency 

head, in consultation with the Director of OMB, establish a remediation 

plan to bring the systems into substantial compliance with FFMIA’s 

requirements.

According to FFMIA, the remediation plans should include the corrective 

actions, intermediate target dates, and resources necessary to bring 

financial systems into substantial compliance with FFMIA’s requirements 

within 3 years of the date the agency head’s noncompliance determination 

is made.14 If, with concurrence of the Director of OMB, the agency head 

determines that substantial compliance cannot be attained within 3 years, 

the remediation plan must specify the most feasible date by which the 

agency’s systems will achieve compliance and designate an official 

responsible for effecting the necessary corrective actions. 

In accordance with the revisions to OMB guidance contained in Circular A11, Preparation, Submission, and Execution of the Budget, issued June 

27, 2002, agencies are required to include their remediation plans in their 

annual budget submissions due to OMB by September 9, 2002. The 

guidance requires that the plans include corrective actions, resources 

needed, and interim target dates to bring the financial management 

systems into substantial compliance within 3 years of the date of the 

agencies’ determination that their systems are not in substantial 

compliance. The plan must also list the officials responsible for bringing 

14Fiscal year 2000 remediation plans, addressing instances of noncompliance with FFMIA 

identified in financial statement audits reports covering fiscal year 2000, were due to OMB 

by September 10, 2001. Remediation plans addressing instances of noncompliance identified 

in the fiscal year 2001 financial statement audit reports were not due to OMB until 

September 9, 2002. Therefore, in reviewing remediation plans, we reviewed the fiscal year 

2000 plans. 
Page 13 GAO-03-31 FFMIA FY 2001 Results

the systems into substantial compliance with FFMIA. Agency remediation 

plans are included in agency budget submissions and subject to change. 

OMB considers these budget submissions predecisional and therefore not 

public documents. 

OMB Guidance Related to 

FFMIA

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 whether an agency’s systems are in compliance with FFMIA 

and provides guidance to agency heads to assist in developing corrective 

action plans for bringing their systems into compliance with FFMIA. There 

are examples included in the guidance on the types of indicators that 

should be used as a basis in assessing whether an agency’s systems are in 

substantial compliance with FFMIA. 

Scope and 

Methodology

We reviewed fiscal year 2001 financial statement audit reports for the 24 

CFO Act agencies to determine (1) which agencies had systems that their 

auditors found to be noncompliant with FFMIA requirements, (2) the 

reasons why the systems were found to be noncompliant, and (3) the type 

of assurance the auditors provided. We did not independently verify or test 

the data in the agency audit reports. Using structured interviews, we 

interviewed auditors and agency management for 7 CFO Act agencies15 to 

obtain their perspectives on FFMIA implementation. These 7 agencies 

included 4 in which the auditors provided negative assurance in reporting 

15The seven agencies selected were the Departments of Energy and Labor, the General 

Services Administration (GSA), the National Aeronautics and Space Administration (NASA), 

the National Science Foundation (NSF), the Small Business Administration, and the Social 

Security Administration. 
Page 14 GAO-03-31 FFMIA FY 2001 Results

on FFMIA compliance for fiscal year 2001. We also interviewed officials at 

3 other agencies in which the auditors provided negative assurance for 

fiscal year 2000 but reported the agencies’ systems to be in noncompliance 

for fiscal year 2001. For these 7 agencies, we also reviewed the auditors’

FFMIA workpapers to assess the nature and extent of FFMIA testing. We 

also reviewed the auditors’ reports and contacted respective agencies, as 

needed, to identify agency management FFMIA determinations for the 24 

CFO Act agencies. 

We reviewed the guidance for preparing remediation plans for fiscal year 

2000 contained in the revisions to OMB Circular A-11, Preparation, 

Submission, and Execution of the Budget. We reviewed agencies’ fiscal 

year 2000 remediation plans16 to determine if they contained the required 

elements and if the proposed corrective actions addressed were adequately 

detailed if implemented satisfactorily, to resolve the reported instances of 

noncompliance with FFMIA. We compared the fiscal year 2000 plans to the 

remediation plans submitted for fiscal year 1999 to determine if any of the 

plans had improved. Because agency remediation plans are included in 

agency budget submissions, OMB considers the plans predecisional and 

therefore not public documents. We did not have the agencies’ complete 

budget submissions to determine whether they provided more details than 

were available in the stand-alone agency remediation plans. 

We conducted our work from January through August 2002 at the CFO Act 

agencies, OMB, and JFMIP 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 V. We also requested 

oral comments from selected agency and IG officials whose financial 

management systems or audit procedures are specifically discussed in the 

report. We received oral comments from 4 agency and 3 IG officials of an 

editorial and technical nature. Specifically, we received oral comments 

from the Departments of Agriculture (Agriculture) and Commerce, Office 

of Personnel Management, and SSA agency officials, and from Agriculture, 

Department of the Interior (Interior), and Nuclear Regulatory Commission 

16The fiscal year 2000 remediation plans were the most recently available documents since 

the plans for responding to issues identified for fiscal year 2001 were not due to OMB until 

September 9, 2002. 
Page 15 GAO-03-31 FFMIA FY 2001 Results

(NRC) IG officials. These comments have been incorporated as 

appropriate. 

Continued System 

Weaknesses Impair 

Financial Management 

Accountability

Many 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 

undeniably making progress in addressing their financial management 

systems weaknesses, most agency systems are still not substantially in 

compliance with FFMIA’s requirements. IGs and their contract auditors 

reported for fiscal year 2001 that the systems of 20 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. 

For fiscal year 2001, 7 agencies were reported not to be in substantial 

compliance with all three FFMIA requirements. Figure 4 summarizes the 

auditors’ determinations regarding how many of the 24 CFO Act agencies 

were reported as not in substantial compliance with each of the three 

FFMIA requirements. 
Page 16 GAO-03-31 FFMIA FY 2001 Results

Figure 4: Auditors’ FFMIA Determinations for Fiscal Year 2001

Note: Management for 22 of the 24 agencies agreed with their auditors' FFMIA determinations. 

Management for 2 agencies--the Environmental Protection Agency (EPA) and the National Science 

Foundation (NSF)--did not agree with their auditors' determinations. EPA management disagreed with 

the IG's determination that EPA was noncompliant with SFFAS No. 4 because EPA did not comply with 

the requirements to provide cost per output to management in a timely fashion. NSF management 

disagreed with its auditors that several weaknesses in its agency security over information systems 

rendered NSF noncompliant with OMB Circular A-130, and therefore FFMIA.

Source: GAO analysis of agency audit reports. We did not independently verify or test the data in the 

agency audit reports. 

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 5 years, from 11 in fiscal year 

1997 to 18 for fiscal years 2000 and 2001. This increase in unqualified audit 

opinions generally results from monumental efforts in which agencies 

expend significant resources simply to prepare auditable financial 

statements. While the increase in unqualified opinions is noteworthy, the 

number of agencies for which auditors provided negative assurance of 

FFMIA compliance has remained relatively constant throughout this same 

period. When more agencies receive clean opinions, expectations are 

System 

requirements

Accounting 

standards

SGL

Agencies not in compliance

0

5

10

15

20 19

14

8
Page 17 GAO-03-31 FFMIA FY 2001 Results

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. 

Crosscutting Reasons 

for Noncompliance 

Indicate Serious 

Problems Remain

Based on our review of the fiscal year 2001 audit reports for the 20 agencies 

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

FFMIA’s three requirements, we identified six primary reasons related to 

FFMIA noncompliance. The weaknesses reported by the auditors, which 

are grouped into the following 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,

• noncompliance with the SGL,

• lack of adherence to federal accounting standards, and

• weak security controls over information systems.

Figure 5 shows the relative frequency of these problems at the 20 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 year 2000 audit reports, as 

highlighted in figure 5. However, the auditors may not have reported these 

problems as specific reasons for lack of substantial compliance with 

FFMIA. We caution that the degree of noncompliance in a particular 

category may be even greater because auditors reporting FFMIA 

noncompliance 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 lack substantial compliance without 

examining every facet of FFMIA compliance. 
Page 18 GAO-03-31 FFMIA FY 2001 Results

Figure 5: Problems Reported by Auditors for Fiscal Years 2000 and 2001

Source: GAO analysis of agency audit reports for fiscal year 2001. We did not independently 

verify or test the data in the agency audit reports.

Nonintegrated financial 

management systems

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

accounting and financial management system17 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 information, and (3) the 

integration of accounting, budgeting, and program information. In this 

13

16

14

8

12

19

14

13

12

8

14

20

Nonintegrated

 financial

 management

 systems

 Inadequate

reconciliation

 

procedures

Lack of 

 accurate

 and timely 

 reporting

Noncompliance

 

with the SGL

 Lack of 

adherence

 to federal

 accounting

 standards

 

Weak 

security over 

 information 

 systems

Agencies

Fiscal year 2000

Fiscal year 2001

0

4

8

12

16

20

17Federal 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-03-31 FFMIA FY 2001 Results

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

agencies to establish and maintain a single integrated financial 

management system that conforms with functional requirements published 

by JFMIP.

An integrated financial system coordinates a number of functions to 

improve overall efficiency and control. For example, integrated financial 

management systems are designed to avoid unnecessary duplication of 

transaction entry and greatly lessen reconciliation issues. With integrated 

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

purposes or functions. Moreover, with an integrated financial management 

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

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

reporting. 

Agencies that do not have integrated financial management systems 

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

hiring external consultants, to develop information that their systems 

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

opportunities for errors are increased when agencies’ systems are not 

integrated. Agencies with nonintegrated financial systems are more likely 

to be required to devote more resources to collecting information than 

those with integrated systems. OMB’s accelerated reporting dates for 

agency performance and accountability reports18 may make such efforts 

and devotion of resources unsustainable in the long term. As a result, many 

agencies must accelerate their efforts to improve underlying financial 

management systems and controls, which is consistent with reaching the 

financial management success measures envisioned by the President’s 

Management Agenda and the JFMIP Principals. 

Auditors frequently mentioned the lack of modern, integrated financial 

management systems in their fiscal year 2001 audit reports. As shown in 

figure 5, auditors for 14 of the 20 agencies with noncompliant systems 

reported this as a problem. For example, the Department of Education’s 

(Education) lack of a fully integrated financial management system 

seriously affected its ability to accumulate, analyze, and present reliable 

financial information. According to its auditors, Education compiled its 

fiscal year 2001 financial statements through a multistep process that 

18Agency performance and accountability reports include the audit report and the audited 

financial statements. 
Page 20 GAO-03-31 FFMIA FY 2001 Results

includes both manual and automated procedures, which increases the risk 

of errors in the departmentwide financial statements. These manual 

processes can lead to errors that may affect current and prior fiscal years. 

For example, Education recorded numerous restatements and 

reclassifications of prior fiscal year financial statement balances based on 

its extensive analysis of certain general ledger balances in an effort to 

resolve errors that existed in past years. While the auditors noted that some 

of the entries to correct or reclassify amounts resulted from Education’s 

extensive analysis, the identification of these errors reinforces concerns 

about Education’s lack of an integrated financial management system. 

According to the auditors, Education processed and approved adjustments 

to correct or reclassify amounts that were later discovered to be erroneous. 

As a result, additional manual adjustments were needed to correct these 

new errors, which cast doubt on the sufficiency of the process for 

reviewing and approving adjustments. To focus attention on long-standing 

financial management issues, the Secretary of Education created a 

Management Improvement Team (MIT). The MIT’s goals include addressing 

outstanding recommendations related to the financial statement audits and 

ensuring an environment with effective internal controls. The Education IG 

noted that the MIT has identified corrective actions for improving the 

department’s programs and operations. 

Inadequate reconciliation 

procedures

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

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

financial management system, the greater the need for adequate 

reconciliations because data for the same transaction may be separately 

entered in multiple systems, causing the risk of errors to be greater. For 

example, according to its auditors, the Agency for International 

Development (AID) must place a greater reliance on processes like 

reconcilations because it lacks an integrated system. Reconciliation 

procedures are a control necessary to maintain and substantiate the 

accuracy of the data reported in an agency’s financial statements and 

reports. The Comptroller General’s Standards for Internal Control in the 

Federal Government highlights reconciliation as a key control activity. 

As shown in figure 5, auditors for 13 of the 20 agencies with noncompliant 

systems reported that the agencies had reconciliation problems, including 

difficulty reconciling their fund balance with Treasury accounts19 with 

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

accounts. Agencies increase or decrease these accounts as they collect or disburse funds.
Page 21 GAO-03-31 FFMIA FY 2001 Results

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. 

However, such reconciliations were not being routinely performed. For 

example, during fiscal year 2001 some of the fund balances with Treasury 

for the Department of State (State) did not reconcile with Treasury’s fund 

balance amounts. State’s auditors reported that the absolute difference20

between State’s and Treasury’s balances as of September 30, 2001, was 

about $131 million. State’s auditors noted that while progress had been 

made in reducing the net difference between State’s and Treasury’s records, 

weaknesses in the reconciliation process still remained, particularly 

affecting older fund balances. The auditors recommended that State 

reexamine its reconciliation processes and also assess whether 

adjustments should be made to its records. 

Inadequate reconciliation procedures also complicate the identification 

and elimination of intragovernmental transactions, which is one of the 

principal reasons we continue to disclaim on the government’s 

consolidated financial statements. As we testified in April 2002,21 agencies 

have not reconciled intragovernmental balances with their trading 

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

For several years, OMB and Treasury have required the CFO Act agencies 

to reconcile selected intragovernmental activity and balances with their 

trading partners. However, numerous agencies did not fully perform these 

reconciliations for fiscal year 2000. Beginning with fiscal year 2001, OMB 

and Treasury required agency CFOs to report on the extent and results of 

intragovernmental activity reconciliation efforts. The IGs reviewed these 

reports and communicated the results to OMB, Treasury, and GAO. IGs 

reported that the required reconciliations for fiscal year 2001 were not fully 

performed, citing reasons such as (1) trading partners not providing 

needed data, (2) limitations and incompatibility of agency and trading 

partner systems, and (3) human resource issues. For fiscal years 2001 and 

2000, amounts reported for certain intragovernmental accounts were 

20Absolute differences are computed with all numbers considered to be positive numbers. 

21U.S. General Accounting Office, U.S. Government Financial Statements: FY 2001 Results 

Highlight the Continuing Need to Accelerate Federal Financial Management Reform, 

GAO-02-599T (Washington, D.C.: Apr. 9, 2002).

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

business with each other. 
Page 22 GAO-03-31 FFMIA FY 2001 Results

significantly out of balance. OMB has proposed “business rules” for certain 

types of intragovernmental transactions. The continued involvement of 

OMB and the CFO Act agencies will be critical to resolving this issue. 

Lack of accurate and timely 

recording of financial 

information

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. As shown in figure 5, auditors for 12 of 

the 20 agencies with noncompliant systems found that agencies did not 

record transactions in the general ledger in an accurate and timely manner.

The lack of timely transaction recording can also result in the use of 

inaccurate information for decision making. For example, auditors for six 

agencies reported that unliquidated obligations23 were not deobligated in a 

timely manner due to the lack of procedures for reviewing unliquidated 

obligations or the failure to follow prescribed procedures. Agency failure to 

deobligate funds in a timely manner may result in the loss of the use of 

those funds. For example, auditors for the Department of Transportation 

(DOT) identified about $293 million of obligations that were no longer 

needed and could be used for other valid purposes or returned to the U.S. 

Treasury. 

Untimely transaction recording during the fiscal year can also result in 

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. For example, auditors reported that Department of 

Justice (Justice) components did not perform their accrual-based financial 

transaction processing on an ongoing basis. Auditors for two components, 

the Drug Enforcement Administration and the Offices, Boards, and 

Divisions, stated that the financial statement preparation effort must be a 

componentwide effort, involving all program budget and administrative 

offices. Gathering financial data only at year-end does not provide adequate 

time to analyze transactions or account balances. Without time to perform 

these analyses, misstated or unsupported financial statement account 

23The value of goods and services ordered and obligated which have not been paid.
Page 23 GAO-03-31 FFMIA FY 2001 Results

balances can occur. Further, it impedes management’s ability throughout 

the year to have timely and useful information for decision making. 

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

requirements of FFMIA. However, as shown in figure 5, auditors for 8 of the 

20 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. It 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 component agencies and 

functions. For example, auditors for AID reported that AID does not report 

on its mission activities24 using the SGL at the transaction level. These 

mission activities account for approximately 52 percent of AID’s total net 

cost of operations. AID recorded its mission activities in its Mission 

Accounting and Control System—an automated system that uses 

transaction codes that do not match to the SGL chart of accounts. AID used 

a monthly process to crosswalk these mission transactions to the SGL, but 

could not ensure that transactions were posted properly and consistently 

from mission to mission. OMB officials have stated that while this monthly 

process may be a good interim solution until AID has fully implemented its 

new core financial system, this process does not allow AID’s systems to be 

substantially compliant with the SGL at the transaction level. Until AID 

deploys its newly implemented core financial system worldwide,25 it will 

continue to use the Mission Accounting and Control System for its overseas 

missions.

The Department of Housing and Urban Development’s (HUD) Federal 

Housing Administration (FHA) must use several manual processing steps 

to convert its commercial accounts to SGL accounts. FHA’s legacy core 

financial system, which includes its general ledger, is based on commercial 

24An AID mission is a representative in a cooperating country. AID has overseas missions 

and offices that manage projects associated with this foreign assistance. 

25AID has estimated that the worldwide deployment of the core financial system will not 

begin until fiscal year 2008. 
Page 24 GAO-03-31 FFMIA FY 2001 Results

rather than governmental accounting. FHA has 22 systems that feed 

transactions to its core financial system, 15 of which cannot process 

transactions in the SGL format. FHA’s manual processes include the use of 

personal computer-based software to convert its commercial accounts to 

the SGL. FHA then transfers the balances to HUD’s Central Accounting and 

Program System (HUDCAPS). HUD’s auditors noted that FHA’s current 

process does not meet federal financial management systems requirements 

that a core financial system “provide for the automated and year-end 

closing of SGL accounts and rollover of the SGL account balances.” FHA 

has completed the initial phases of its project to implement a COTS 

financial software system. FHA intends to complete implementation of the 

general ledger module of this COTS system by the beginning of fiscal year 

2003, including the implementation of the SGL at the transaction level. 

Lack of adherence to federal 

accounting standards

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

systems account for transactions in accordance with federal accounting 

standards. Agencies face significant challenges implementing these 

standards. As shown in figure 5, auditors for 14 of the 20 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. Auditors for 3 agencies—HUD, Interior, 

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

Revenue and Other Financing Sources, which became effective in fiscal 

year 1998. Auditors for several Justice components reported that 

improvements are needed in their accounting processes for earned and 

deferred revenue. For example, auditors for Justice’s Immigration and 

Naturalization Service (INS) reported that INS does not have a reliable 

system that can provide regular and timely data on the number and value of 

immigration applications and petitions received, completed, and pending. 

INS needs this data to support general ledger entries for recording the 

earned revenues when the applications are completed. Auditors for 5 

agencies—the Department of Defense (DOD), AID, EPA, the Federal 

Emergency Management Agency (FEMA), and the NRC—reported trouble 

implementing SFFAS No. 10, Accounting for Internal Use Software, which 

became effective at the beginning of fiscal year 2001. For example, auditors 

reported that while NRC had developed policies to implement SFFAS No. 

10, NRC had not satisfactorily implemented the management controls 

needed to ensure compliance with SFFAS No. 10 and did not have an 

adequate system to track the labor time spent on information technology 

projects. 
Page 25 GAO-03-31 FFMIA FY 2001 Results

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 eight agencies26 reported problems implementing SFFAS No. 4, 

Managerial Cost Accounting Concepts and Standards. For example, 

auditors reported that FEMA does not have a managerial cost accounting 

system and its financial management system did not capture data at a 

detailed enough level. Having such a managerial cost capability would 

allow FEMA to give managers timely access to program costing reports and 

more effectively present performance measures. FEMA has developed a 

three-phase remediation plan to address issues related to compliance with 

FFMIA. In the third phase, FEMA plans to address the issues related to the 

need for cost management information to give managers timely access to 

program costing reports. 

Managerial cost information is critical for implementation of the 

President’s Management Agenda. SFFAS No. 4 uses the term “managerial 

cost accounting.” Some agencies have adopted the term “cost 

management” to emphasize that cost, budget, and performance data are 

needed to improve management decision making throughout the year, and 

are more comprehensive than the cost data required for external reporting. 

We later discuss further implications related to cost management and 

agencies that have made promising strides toward implementing this 

critical tool. 

Weak security controls over 

information systems

Information security weaknesses are one of the frequently cited reasons 

for noncompliance with FFMIA and are a major concern for federal 

agencies and the general public. These weaknesses are placing enormous 

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

financial information at risk of unauthorized modification or destruction, 

sensitive information at risk of inappropriate disclosure, and critical 

operations at risk of disruption. Auditors for all 20 of the agencies reported 

as noncompliant with FFMIA identified weaknesses in security controls 

over information systems. In addition, auditors for the 4 agencies that 

provided negative assurance in reporting on compliance with FFMIA in 

their fiscal year 2001 audit reports identified computer security problems at 

those agencies, but did not consider those problems significant enough to 

be instances of a lack of substantial compliance with FFMIA. Unresolved 

information security weaknesses could adversely affect the ability of 

26These eight agencies are: Agriculture, DOD, DOT, AID, EPA, FEMA, National Aeronautics 

and Space Administration (NASA), and NRC. 
Page 26 GAO-03-31 FFMIA FY 2001 Results

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. 

Since 1997, GAO has considered information security a governmentwide 

high-risk area.27 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 (GISRA) provisions28 to reduce 

these risks and provide more effective oversight of federal information 

security. GISRA requires 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 also 

added an important new requirement by calling for both annual 

management and independent evaluations of the information security 

program and practices of an agency. We testified in March 200229 that 

information security weaknesses were most often identified30 for (1) 

security program management, (2) access controls, and (3) service 

continuity controls. Security program management provides the 

framework for ensuring that risks are understood and that effective 

controls are selected and properly implemented. Access controls ensure 

that only authorized individuals can read, alter, or delete data. Service 

continuity controls ensure that when unexpected events occur, such as a 

natural disaster, critical operations will continue without undue 

interruption and that crucial, sensitive data are protected.

27U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington, 

D.C.: January 2001). 

28These provisions are part of the Floyd D. Spence National Defense Authorization Act for 

Fiscal Year 2001. 

29U.S. General Accounting Office, Information Security: Additional Actions Needed to 

Fully Implement Reform Legislation, GAO-02-470T (Washington, D.C.: March 6, 2002). 

30We analyzed the results of IG and GAO audit reports published from July 2000 through 

September 2001, including the results of the IGs’ independent evaluations. 
Page 27 GAO-03-31 FFMIA FY 2001 Results

As we testified in March 2002,31 OMB is using a combination of formal 

guidance, review and analysis of agency-reported material, agency 

discussion and feedback, and monitoring of corrective actions to oversee 

and coordinate agency compliance with the GISRA provisions. On January 

16, 2001, OMB issued Guidance on Implementing the Government 

Information Security Reform Act that summarized OMB, agency, and IG 

responsibilities as well as provided answers to other specific 

implementation questions. On June 22, 2001, OMB followed up its 

implementation guidance with Reporting Instructions for the Government 

Information Security Reform Act that contained final reporting 

instructions that directed agencies to transmit copies of their annual 

agency program reviews and IG independent evaluations to OMB. 

Furthermore, on October 17, 2001, OMB also issued Guidance for 

Preparing and Submitting Security Plans of Action and Milestones,

which included detailed guidance for preparing and submitting security 

plans of action and milestones (corrective action plans), which list 

information security weaknesses identified in agencies’ annual reviews and 

evaluations and describe how and when these weaknesses would be 

addressed. OMB is continuing to address information security and for fiscal 

year 2002 issued Reporting Instructions for the Government Information 

Security Reform Act and Updated Guidance on Security Plans of Action 

and Milestones, on July 2, 2002, which updated guidance for fiscal year 

2002 GISRA reporting and preparation of corrective action plans. In 

addition to providing guidance, OMB also reviewed the results of the 

agencies’ program reviews and independent evaluations and consulted 

with officials in the agencies to clarify information and provide feedback. 

OMB sent letters to the agency heads that provided the results of its 

assessment of the agencies’ submissions for the reform provisions and 

either conditionally approved or disapproved their information security 

programs. Finally, OMB stated in its first annual GISRA report to the 

Congress dated February 2002 that to intensify oversight, it will, among 

other activities, discuss progress on information technology (IT) security 

corrective action plans with each agency and integrate IT security as an 

element contributing to the Executive Branch Management Scorecard. 

31GAO-02-470T. 
Page 28 GAO-03-31 FFMIA FY 2001 Results

Auditors Provided 

Negative Assurance as 

to Substantial 

Compliance

Auditors for four agencies—the Departments of Energy and Labor, the 

GSA, and SSA—provided negative assurance in reporting on FFMIA 

compliance for fiscal year 2001. 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. 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 wellknown 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. 

One important consideration is that the law does not specify when the 

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. 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 should 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 
Page 29 GAO-03-31 FFMIA FY 2001 Results

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 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 year-end. Some of 

the auditors we interviewed told us that providing positive assurance 

would require more audit work and therefore would result in much higher 

audit fees. For example, auditors for the Department of Energy estimated 

that an additional 400 staff hours would be needed to provide positive 

assurance. Auditors for GSA estimated that it would cost an additional 

$110,000 to $120,000 to provide positive assurance. The auditors we 

interviewed also 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 and guidance 

regarding reporting. 

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. Some of the promising audit procedures noted 

during our review included detailed audit programs and an assessment of 

financial systems’ functionality. 

Moreover, although the compliance indicators in OMB’s January 4, 2001, 

FFMIA guidance were meant only as examples of compliance, auditors for 

several of the agencies we interviewed used the indicators as a checklist 

for determining an agency’s systems compliance. If a deficiency in a 

specific indicator was noted, noncompliance was reported. This was not 

the way the OMB indicators should have been used because just merely 

applying those indicators is too limiting and was not OMB’s intention. 

Auditors cannot follow a checklist approach when assessing the 

substantial compliance of agency systems with FFMIA. Instead, auditors 

need to consider the substance of these systems, particularly how they 

function. Without a comprehensive approach, key systems’ functionalities 

may not be assessed, and the extent of noncompliance will remain 
Page 30 GAO-03-31 FFMIA FY 2001 Results

uncertain. Without testing the functionality of a financial management 

system, auditors cannot be assured that the agencies’ systems are 

operating as designed and that the systems substantially comply with 

FFMIA and provide reliable, useful, and timely information to managers 

and other decision makers. In short, the auditor’s work needs to be 

analytical and not viewed as a checklist procedure. If auditors are merely 

checking boxes, we question the value of their work and do not believe it 

meets the expectations of the Congress in requiring auditor reporting under 

FFMIA.

Last year in reporting on FFMIA,32 we recommended that OMB revise its 

current FFMIA guidance to address a number of issues related to FFMIA 

assessments. We recommended that OMB

• require agency auditors to provide positive assurance when reporting an 

agency’s systems to be in substantial compliance;

• clarify the definition of substantial compliance;

• specify the type of procedures auditors should perform;

• request auditors to pay special attention to the requirements of 

Managerial Cost Accounting Concepts and Standards; and,

• reiterate that the indicators of compliance in the January 4, 2001, FFMIA 

implementation guidance are not meant to be all-inclusive.

OMB officials told us that they had not taken any action to modify their 

FFMIA guidance to address our recommendations related to improving 

auditors’ FFMIA assessments. Instead, they were focusing on new 

initiatives such as the Executive Branch Management Scorecard to help 

stimulate improvements to agency financial management systems. Further, 

OMB said that they plan to combine a number of financial management 

bulletins and circulars, such as OMB Circular A-127 and OMB Bulletin 01-

02, into a comprehensive document that would provide agencies and 

auditors with more flexibility. We look forward to seeing this new OMB 

document which is now under development. 

32U.S. General Accounting Office, Financial Management: FFMIA Implementation Critical 

for Federal Accountability, GAO-02-29 (Washington, D.C.: Oct. 1, 2001). 
Page 31 GAO-03-31 FFMIA FY 2001 Results

To help close the gap in the current OMB guidance, we have worked with 

representatives from the President’s Council on Integrity and Efficiency 

(PCIE) to draft a section for the GAO/PCIE Financial Audit Manual 

(FAM)33 with detailed audit steps for testing agency systems’ substantial 

compliance with FFMIA. Appropriately implemented, these audit steps 

would provide a sufficient basis to conclude whether agencies’ systems 

substantially comply with FFMIA. We will continue to work with PCIE to 

finalize this new section of the GAO/PCIE FAM. Certain members of the 

PCIE indicated that auditors would be reluctant to perform these 

additional procedures and provide positive assurance unless OMB revises 

its guidance to require them to do so. 

Remediation Plans 

Have Improved 

FFMIA requires agency management to prepare remediation plans, in 

consultation with OMB, that describe the corrective actions they plan to 

take to resolve their instances of noncompliance, target dates, and 

resources necessary to bring financial systems into substantial compliance 

with FFMIA requirements. Further, the President’s Management Agenda 

states that OMB will work with agencies to ensure that federal financial 

systems produce accurate and timely information to support operating, 

budget, and policy decisions. In the past, we have noted significant 

deficiencies in these remediation plans, which limit their usefulness as a 

tool for agency management and staff to use for resolving financial 

management problems.34 In reviewing these plans, we measured the 

completeness of agency remediation plans against the law’s criteria that 

these plans include the corrective actions, target dates, and resources 

necessary to bring their systems into substantial compliance. We noted 

improvement in the presentation and amount of detail in the fiscal year 

2000 remediation plans for the Departments of Agriculture, Health and 

Human Services, and DOT. However, we noted that a number of plans 

submitted for fiscal year 2000 still did not have adequate descriptions of the 

resources needed for executing the corrective actions.

Correcting systems problems is a difficult challenge for agencies primarily 

because of the age and deficiencies of their critical financial management 

33The Financial Audit Manual, jointly issued by GAO and the President’s Council on 

Integrity and Efficiency, provides the methodology for performing financial statement audits 

of federal entities. 

34GAO-02-29.
Page 32 GAO-03-31 FFMIA FY 2001 Results

systems and the need to be able to integrate a range of systems with the 

accounting systems that provide financial information such as personnel 

and acquisition systems. Some of the federal government’s automated 

systems were originally designed and developed years ago (in some cases, 

over 2 decades ago) and cannot provide reliable financial information for 

key governmentwide initiatives, such as integrating budget and 

performance information. It is important that agencies focus on the 

substance of the information in these FFMIA remediation plans, rather 

than on the format of the plans. A lack of substance in the plans, including 

associating resources to detailed corrective actions, can limit the 

likelihood of success in adequately implementing the corrective actions. 

Fifteen of the 19 agencies, whose systems were determined by their IGs or 

contract auditors not to be in substantial compliance for fiscal year 2000, 

prepared remediation plans. Two agencies—EPA and the SSA—did not 

prepare plans because management determined that the agencies’ systems 

substantially complied with FFMIA. According to NRC officials, NRC has 

not updated its remediation plan since the version dated May 31, 2001; 

however, NRC did send a condensed version of this plan to OMB last fall 

with its budget submission for fiscal year 2003. According to DOD officials, 

DOD is not going to issue an updated financial management improvement 

plan in light of its ongoing Financial Management Modernization Program. 

This program is expected to address the underlying problems of DOD’s 

financial management systems as well as to transform its overall business 

processes. As we discuss later, the development of a departmentwide 

financial management system enterprise architecture at DOD will be an 

important step in this transformation process. 

We reviewed the 15 available remediation plans to determine whether (1) 

they included all the instances of noncompliance identified in the fiscal 

year 1999 financial statement audits, (2) the planned corrective actions 

were accompanied by detailed steps, (3) the corrective actions, if 

successfully implemented, could potentially resolve the problems, (4) they 

included information about resources needed, and (5) they provided target 

dates for completing the corrective actions. We have not verified the 

agency actions taken to date. For our report on FFMIA compliance last 

year,35 we reviewed the remediation plans prepared by agencies to address 

problems identified in the fiscal year 1999 financial statement audits. For 

this year’s report, we reviewed the agencies’ fiscal year 2000 remediation

35GAO-02-29.
Page 33 GAO-03-31 FFMIA FY 2001 Results

plans.36 Remediation plans need to be sufficiently detailed to provide a 

“road map” for agency management and staff to resolve financial 

management problems identified as part of the FFMIA process. OMB 

requires agencies to include the remediation plan as part of a financial 

management plan that is provided with annual budget submissions. The 

financial management plan should address all aspects of financial 

management improvements. Figure 6 presents the results of our analysis.

Figure 6: Results of Review of Fiscal Year 2000 Remediation Plans

Source: GAO analysis of fiscal year 2000 remediation plans.

36Remediation plans addressing issues identified in the fiscal year 2000 financial statements 

were due to OMB by September 10, 2001.

0

5

10

15

20 Number of plans

14

1

15

0

15

0

5

10

14

1

Are corrective 

actions for 

all instances of 

noncompliance 

included?

Are corrective 

actions detailed?

Will corrective 

actions likely 

resolve the 

problems, 

if successfully 

implemented?

Are resources 

included?

Are time frames 

included?

Yes

No
Page 34 GAO-03-31 FFMIA FY 2001 Results

As shown in figure 6, 14 of the agencies’ remediation plans included 

corrective actions that covered all of the reported instances of 

noncompliance identified in the fiscal year 2000 financial statement audits. 

The remediation plans for Treasury did not include corrective actions to 

cover all of the instances of FFMIA noncompliance reported by the 

auditors. For example, Treasury’s Financial Management Service’s (FMS) 

remediation plan for fiscal year 2000 did not address all of its information 

systems security weaknesses. However, FMS officials issued a revised 

remediation plan in June 2002 that they believe addresses its fiscal year 

2001 instance of noncompliance related to all of the information systems 

security weaknesses. We will include this plan in our evaluation next year 

of the remediation plans submitted to address instances of noncompliance 

reported in the fiscal year 2001 financial statement audits. 

One of the areas of improvement in the remediation plans submitted by the 

15 agencies is in the level of detail provided for the planned corrective 

actions as compared with previous plans. As shown in figure 6, all agencies 

were determined to have sufficient details describing how the various 

actions are to be accomplished. DOT showed significant improvement in 

the level of detail in its remediation plan. DOT is currently implementing a 

fully integrated COTS financial management system throughout the 

department. The fiscal year 2000 plan provides additional detail on the 

implementation process, a more detailed listing of intermediate tasks and 

target dates, the status of the various steps, and the responsible agency 

officials. In particular, the fiscal year 2000 plan has greatly expanded the 

information on actions to be taken at the Federal Aviation Administration 

(FAA) compared to the fiscal year 1999 plan. This is especially important 

since FAA financial management has been designated as a high-risk area 

since January 1999, because of serious and long-standing accounting and 

financial management weaknesses.37

OMB’s guidance and FFMIA state that remediation plans are to include 

resources and target dates necessary to achieve substantial compliance. As 

shown in figure 6, 10 of the 15 remediation plans we reviewed did not 

include a discussion of the staffing and funding resources required to 

complete the planned corrective actions. Such information is important for 

agency management and OMB to determine whether corrective actions can 

realistically be accomplished within the specified timeframes.

37U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington, 

DC: January 2001).
Page 35 GAO-03-31 FFMIA FY 2001 Results

Finally, as shown in figure 6, 14 of the 15 agencies included time frames for 

the corrective actions in their remediation plans. Setting specific target 

dates, including intermediate target dates, facilitates tracking the progress 

agencies are making in reaching their specified goals. The one exception 

was FEMA’s remediation plan, which stated that the planned corrective 

actions required a multiphased, multiyear approach due to budgetary 

constraints; therefore, no specific target dates were provided.

FFMIA specifies that agencies have 3 years to bring their systems into 

compliance after a determination of noncompliance is made; however, 

some agencies have found that the 3-year time period is not sufficient to 

address the reported problems. FFMIA also provides for an extension of 

the time needed to complete the planned corrective actions with the 

concurrence of OMB. For example, in September 2001 HUD requested and 

received the concurrence of the Director of OMB in extending the statutory 

3-year remediation time frame for the implementation of a new core 

financial system at FHA. HUD projected that full implementation of the 

system would be completed by December 2006. OMB’s leadership and 

close oversight of agencies’ remediation efforts will continue to be 

important to help ensure that these plans substantively address the 

problems. 

The advisory role FFMIA established for OMB with respect to agency 

remediation plans is important for addressing the types of problems we 

noted in remediation plans we reviewed. Therefore, in a prior report,38 we 

recommended that OMB work with the agencies to ensure that all 

remediation plans are prepared and submitted in a timely manner. We also 

recommended that OMB review agencies’ plans for (1) detailed corrective 

actions that fully address reported problems, (2) inclusion of resource 

requirements, and (3) specific time frames needed to implement and 

resolve problems. To fulfill their mandated role, OMB has developed a 

multidisciplinary approach for reviewing agency plans to correct FFMIA 

problems.

According to OMB officials, OMB reviews the business cases submitted by 

agencies to support requests for funding of investments in information 

technology. These business cases are included in the agencies’ budget 

38U.S. General Accounting Office, Financial Management: Federal Financial Management 

Improvement Act Results for Fiscal Year 1998, GAO/AIMD-00-3 (Washington, DC: Oct. 1, 

1999). 
Page 36 GAO-03-31 FFMIA FY 2001 Results

submissions. Agencies’ business cases for financial management systems 

are to address, among other things, any FIA, FFMIA, and internal control 

problems reported by auditors or agency management. OMB officials told 

us that agency business cases, which include FFMIA remedial actions, are 

reviewed by OMB’s resource management officers as well as 

representatives from OMB’s statutory offices—the Office of Federal 

Financial Management, Office of Federal Procurement Policy, and the 

Office of Information and Regulatory Affairs. OMB further stated that, 

generally, agency remediation plans are included in agency budget 

submissions and subject to change. OMB considers these budget 

submissions predecisional and therefore not public documents. 

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. While progress continues to be made to improve 

financial management systems, for some agencies there is a long way to go. 

At some agencies, most notably DOD, the problems are so severe that it 

will be years before the full range of systems weaknesses are resolved. To 

be successful, agencies need to overhaul existing business processes by 

identifying the root causes as to why systems have these continuing 

financial management weaknesses. Some agencies, including the 

Departments of Agriculture, Commerce, and DOT, GSA, NASA, the Office 

of Personnel Management (OPM),39 and SSA are in the implementation 

phases of new accounting systems. Other agencies are in the planning and 

design phases, such as the Departments of Defense, Interior, Energy, and 

Justice. FEMA is implementing a new version of its Integrated Financial 

Management Information System. Many of these new financial systems are 

COTS packages sold by vendors whose software has been certified by 

JFMIP.40 It is important in implementing COTS packages that agencies 

reengineer business practices to avoid customization of the COTS software 

and maximize the software’s utility instead of trying to automate ineffective 

current business practices. 

39OPM implemented its new Government Financial Information System on October 1, 2001. 

According to an OPM official, the initial implementation included its general ledger, budget 

execution, project cost accounting, and accounts receivable modules. The second phase of 

the implementation included its accounts payable, automated disbursements, and 

procurement functionality. 

40JFMIP tests vendor COTS packages and certifies that they meet certain financial 

management system requirements for core financial systems. 
Page 37 GAO-03-31 FFMIA FY 2001 Results

Agencies can help ensure that financial management systems investments 

deliver the intended results by (1) using Clinger-Cohen Act IT management 

requirements, (2) undertaking financial management systems 

modernization in a broad enterprise architecture context, and (3) 

redesigning business processes in conjunction with implementing new 

technology. To assist federal agencies in this process, we have developed 

the IT Investment Management Framework41 to provide a common 

structure for discussing and assessing IT capital planning and investment 

management practices. This framework includes steps toward achieving 

both a stable and mature IT investment management process. 

Once a project has been selected, good project management is a critical 

ingredient to successful implementation. For example, it is imperative that 

managers sufficiently plan their project and that the sponsors are involved 

in the implementation. Next, deadlines should be realistic and project 

managers should be capable of understanding the complexities of the job. 

Throughout the job, the implementation should be monitored to ensure the 

project is going as planned. 

While many agencies are in the process of implementing COTS systems to 

address long-standing financial management problems, implementing a 

new system will not resolve these problems without adequate accounting 

policies and internal controls in place. For example, about 98 percent of the 

Department of Agriculture has implemented a COTS package to serve as its 

financial management system. According to an Agriculture IG report42

dated June 2002, Agriculture’s new system could provide the department 

with a materially strengthened accounting system, strengthened financial 

controls, and better financial reporting. But the Office of the Chief 

Financial Officer (OCFO) delegated responsibility to the agencies to 

establish “agency specific” accounting policies and internal controls. The 

IG found that the accounting policies and procedures developed by the 

agencies were not consistent, adequate, or proper. Furthermore, the 

agencies were not following the guidance issued by OCFO. For example, 

the IG found that the agencies were not limiting access, sufficiently 

41U.S. General Accounting Office, Information Technology Investment Management: An 

Overview of GAO’s Assessment Framework (Exposure Draft), GAO/AIMD-00-155

(Washington, D.C.: May 2000).

42U.S. Department of Agriculture, Office of the Inspector General, Audit of Selected 

Foundation Financial Information System Operations, Report Number 50401-42-FM 

(Washington, D.C.: June 2002).
Page 38 GAO-03-31 FFMIA FY 2001 Results

segregating duties, or monitoring appropriation balances. Therefore, 

although the Department of Agriculture has significantly completed 

implementing a COTS package, its long-standing financial management 

problems have not yet been solved. The Agriculture CFO advised us that 

they have taken a number of steps to strengthen financial management and 

to address issues identified by the IG.

NASA is working toward implementing an integrated financial management 

system that it expects to be fully operational in 2006 at an estimated cost of 

$475 million. As we testified in March 2002,43 this is NASA’s third attempt to 

implement a new financial management system. The first two efforts were 

abandoned after 12 years and expenditures of $180 million. Given the high 

stakes involved, it is critical that NASA’s leadership provide the necessary 

direction, oversight, and sustained attention to ensure that this project is 

successful.

According to SSA officials, SSA has successfully completed their “test 

drive” of a new COTS system. The purpose of the “test drive” was to ensure 

that the COTS system could meet the agency’s needs before beginning 

implementation. SSA decided to purchase the package and to begin 

implementation. Currently, SSA management is analyzing gaps and 

reviewing business processes to determine what business processes or 

software changes are necessary. 

Problems with DOD’s financial management operations go far beyond its 

accounting and finance systems and processes. DOD continues to rely on a 

far-flung, complex network of finance, logistics, personnel, acquisition, and 

other management information systems to gather the financial data needed 

to support day-to-day management decision making. This network was not 

designed to be, but rather has evolved into, the overly complex and errorprone operation that exists today, including (1) little standardization across 

DOD components, (2) multiple systems performing the same tasks, (3) the 

same data stored in multiple systems, (4) manual data entry into multiple 

systems, and (5) a large number of data translations and interfaces that 

combine to exacerbate problems with data integrity. Many of DOD’s 

business operations are mired in old, inefficient processes and legacy 

systems, some of which go back to the 1950s and 1960s. By a wide margin, 

43U.S. General Accounting Office, National Aeronautics and Space Administration: 

Leadership and Systems Needed to Effect Financial Management Improvements, GAO-02-

551T (Washington, D.C.: March 20, 2002). 
Page 39 GAO-03-31 FFMIA FY 2001 Results

DOD faces the greatest challenge of any agency in overhauling its financial 

management systems. 

Past efforts at reforming DOD’s business operations have been impeded in 

part by the (1) lack of sustained top-level leadership and (2) cultural 

resistance to change. DOD’s past experience has suggested that top 

management has not had a proactive, consistent, and continuing role in 

building capacity, integrating daily operations for achieving performance 

goals, and creating incentives. Sustaining top management commitment to 

performance goals is a particular challenge for DOD. In the past, the 

average 1.7-year tenure of the department’s top political appointees has 

served to hinder long-term planning and follow-through. Further, Secretary 

Rumsfeld has articulated that modernizing DOD’s business operations and 

systems is a departmentwide priority and will require leadership at every 

level. Cultural resistance to change and military service parochialism have 

also played a significant role in impeding previous attempts to implement 

broad-based management reforms at DOD. The department has 

acknowledged that it confronts decades-old problems deeply grounded in 

the bureaucratic history and operating practices of a complex, multifaceted 

organization, and that many of these practices were developed piecemeal 

and evolved to accommodate different organizations, each with its own 

policies and procedures.

As discussed in our June 2002 testimony,44 DOD’s vast array of costly, 

nonintegrated, duplicative, and inefficient financial management systems 

has resulted in part because of the lack of an integrated approach to 

addressing its management challenges. In response to our May 2001 

report,45 DOD has undertaken the development of an enterprise 

architecture to achieve the Secretary’s vision of having “reliable, accurate 

and timely financial management information upon which to make the 

most effective business decisions.” In fiscal year 2002, DOD received 

approximately $98 million and has requested another $96 million for fiscal 

year 2003 for this effort. Consistent with the recommendations contained

44U.S. General Accounting Office, DOD Financial Management: Important Steps 

Underway But Reform Will Require Long-term Commitment, GAO-02-784T (Washington, 

D.C.: June 2002).

45U.S. General Accounting Office, Information Technology: Architecture Needed to Guide 

Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 2001).
Page 40 GAO-03-31 FFMIA FY 2001 Results

in our January 199946 and May 2001 reports, DOD has an extensive effort 

underway to document the department’s current “as-is” financial 

management architecture by identifying systems currently relied upon to 

carry out financial management operations throughout the department. To 

date, DOD has identified over 1,500 systems that are involved in the 

processing of financial information. In developing the “as-is” environment 

DOD has recognized that financial management is broader than just 

accounting and finance systems. Rather, it includes the department’s 

budget formulation, acquisition, inventory management, logistics, 

personnel, and property management systems. In developing and 

implementing its enterprise architecture, DOD will need to ensure that the 

multitude of systems efforts currently underway are designed as an integral 

part of the future architecture.

Managerial Cost 

Information Is Critical 

for Implementing the 

President’s 

Management Agenda

According to the President’s Management Agenda, the accomplishment of 

the other four governmentwide initiatives47 will matter little without the 

integration of agency budgets with performance. The lack of a consistent 

information and reporting framework for performance, budgeting, and 

accounting obscures how well government programs are performing as 

well as inhibits comparisons of performance and cost across programs. 

Timely, accurate, and useful financial and performance information can 

form the basis for reconsidering the relevance or “fit” of any federal 

program or activity in today’s world and for the future. However, even the 

most meaningful links between performance results and resources 

consumed 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. 

As we have previously discussed, laws, regulations, and standards 

emphasize that reliable information on the costs of federal programs and 

46U.S. General Accounting Office, Financial Management: Analysis of DOD’s First 

Biennial Financial Management Improvement Plan, GAO/AIMD-99-44 (Washington, D.C.: 

Jan. 29, 1999).

47The other four governmentwide initiatives are improved financial performance, strategic 

management of human capital, competitive sourcing, and expanded electronic government. 
Page 41 GAO-03-31 FFMIA FY 2001 Results

activities is crucial for effective management of government operations. In 

particular, the concepts and standards in SFFAS No. 4 require agencies to 

develop cost accounting processes that will enable them to provide timely 

and reliable information on the full cost of federal programs, their 

activities, and outputs. Further, good information on financial program 

performance is necessary for the full and effective implementation of 

GPRA. The success of GPRA is crucial to transitioning to a more resultsoriented federal government where agencies are held accountable for 

achieving specific program results. Cost information supports decision 

making in a variety of different business environments, such as:

1. financial accounting—to assist federal financial report users in 

evaluating service efforts, costs, and the accomplishment of the 

reporting entity;

2. budgeting—to plan and make resource allocation decisions; and

3. managing—to manage resources in the accomplishments of broad 

program purposes, to manage the unit cost of output to ensure that 

units of output are produced as effectively and efficiently as possible, 

and to set fees.

In each of these environments, management must know the cost of their 

activities in order to make good business decisions and to report financial 

and performance information to external parties such as the Congress and 

the public, who in turn will then be able to use this cost information to 

assess the budget integrity, program and operating performance, 

stewardship, systems, and controls of the federal government.

Linking of agency budgets with performance is enhanced when agencies 

integrate managerial cost information into their program activities (or lines 

of business). For example, Treasury’s IG stated that one of the management 

and performance challenges48 that Treasury faced is the integration of cost 

accounting with its business activities. The IG reported that Treasury 

managers were unable to link resources to results and often reported their 

accomplishments based on anecdotal performance evidence and outdated 

financial information. 

48U.S. Department of the Treasury, Office of the Inspector General, Management and 

Performance Challenges Facing the Department of the Treasury (Washington, D.C.: Jan. 30, 

2002). 
Page 42 GAO-03-31 FFMIA FY 2001 Results

Agency implementation of managerial cost accounting can be a complex 

and arduous task. For example, FAA has been developing a cost accounting 

system, as required by the Federal Aviation Reauthorization Act of 1996,49

for several years. DOT’s IG reported in January 200250 that notwithstanding 

the progress and successes realized so far, FAA still faces significant 

challenges to complete and operate a credible cost accounting system. The 

IG concluded that FAA still needed to (1) implement, on a timely basis, fully 

developed cost accounting and labor distribution systems, (2) establish 

cost and performance management practices, (3) account for overhead 

costs, (4) track assets, and (5) develop an adequate system of internal 

controls. Other agencies have adopted various methods of accumulating 

and assigning costs to obtain managerial cost information needed to 

enhance programs, improve processes, establish fees, develop budgets, 

prepare financial reports, and report on performance. A number of 

agencies have implemented activity-based costing (ABC), which creates a 

cost model of an organization by identifying the activities performed, the 

resources consumed, and the outputs (products and services) produced by 

that organization. ABC then uses accounting and workload data to assign 

costs to the activities and related outputs. For example, the Small Business 

Administration (SBA) uses ABC to support financial reporting, 

management decision making, performance reporting, budgeting, and cost 

reimbursements. SBA has used information from its cost management 

system to prepare the Statement of Net Costs, make resource allocation 

decisions, and provide information for outsourcing alternatives. SBA has 

also used managerial costing to provide a crosswalk between the costs of 

activities and programs and the agency’s strategic goals and objectives. 

SBA’s cost allocation model provides information about the full costs 

(direct and indirect) of its programs as well as unit costs for many program 

outputs. In fiscal year 2001, SBA began using activity-based budgeting 

(ABB) to analyze program office budgets. The purpose of ABB is to show 

the linkage between the resources the agency plans to consume and the

49This act required FAA to develop a cost accounting system that adequately and accurately 

reflects the investments, operating and overhead costs, revenues, and other financial 

measurement and reporting aspects of its operations. 

50U.S. Department of Transportation, Office of Inspector General, 2001 Status Assessment 

of Cost Accounting System and Practices, Federal Aviation Administration (Washington, 

D.C.: Jan. 10, 2002).
Page 43 GAO-03-31 FFMIA FY 2001 Results

outputs it plans to produce. ABC and ABB can provide SBA with the 

information needed for sound decision making.51

While some agencies have found this method to be useful, ABC is not a 

universal solution for all organizations. Other agencies have developed 

managerial costing approaches that build upon existing accounting 

systems. For example, the Department of the Interior’s Bureau of Land 

Management (BLM) has implemented an innovative cost model that aligns 

the costs of the bureau’s activities with its work processes and mission 

goals. This model was developed with extensive coordination with field 

personnel and has been used for management decision making and to 

develop budget requests. 

Increasing Emphasis 

On Improving 

Financial Management 

from the Highest 

Levels of Government

Increasing attention from the highest levels of the federal government is 

being targeted on improving federal financial management. Most 

importantly, The President’s Management Agenda Fiscal Year 2002

includes improved financial performance as one of the five top 

governmentwide management goals. Improvement in federal financial 

management systems is central to achieving improved financial 

performance. The administration is using the Executive Branch 

Management Scorecard to highlight agency progress in achieving the 

management and performance improvements embodied in the President’s 

Management Agenda. Moreover, the JFMIP52 Principals—the Secretary of 

the Treasury, the Director of OMB, the Director of OPM, and the 

Comptroller General—have been holding quarterly meetings that have 

resulted in unprecedented substantive deliberations and agreements 

focused on key reform issues such as better-defined measures for gauging 

financial management success and the establishment of financial 

management committees. 

51Using ABC and ABB allows agencies to manage by activity, otherwise known as activitybased management.

52JFMIP is a joint and cooperative undertaking of OMB, the Department of the Treasury, 

OPM, and GAO working with executive agencies to improve financial management 

practices throughout the federal government.
Page 44 GAO-03-31 FFMIA FY 2001 Results

President’s Management 

Agenda and the Executive 

Branch Management 

Scorecard

The administration, with its release of the President’s Management 

Agenda in August 2001, has set forth improved financial performance as 

one of its five governmentwide initiatives. OMB’s criteria for measuring 

improved financial performance include (1) ensuring that financial 

management systems substantially meet federal financial management 

system requirements and applicable federal accounting and transaction 

standards, (2) producing accurate and timely financial information, (3) 

integrating financial and performance management systems to support dayto-day agency operations, and (4) receiving unqualified and timely opinions 

on the annual financial statements and no material internal control 

weaknesses53 reported by the auditors. This is another area that the JFMIP 

Principals have addressed and on which they are in agreement. 

The administration is using the Executive Branch Management Scorecard, 

based on OMB’s criteria, to highlight agencies’ progress in achieving the 

improvements embodied in the President’s Management Agenda. This is a 

step in the right direction to improving management and performance. The 

value of the scorecards is not in the scoring, but in the degree to which the 

scores lead to sustained focus and demonstrable improvements over time. 

This will depend on continued efforts to assess progress and maintain 

accountability to ensure that agencies are able to, in fact, improve 

performance. It is important that there be continual rigor in the scoring 

process for the approach to be credible and effective. OMB provided its 

baseline scores judging agency financial management as of September 30, 

2001, and an updated version of the scorecard was released as of June 30, 

2002.

The recent scores indicate that while there has been progress made in 

implementing the President’s Management Agenda in many agencies, it 

has not been uniform. The Scorecard had both current status scores and 

progress in implementation scores for financial management. The “status”

is assessed against the standards for success communicated by OMB in its 

October 30, 2001, memo to executive departments and agencies. According 

to OMB, one agency, the Department of Labor, has been upgraded from red 

to yellow for its status score because it has demonstrated commitment to 

improving and has made good progress. OMB has identified four tasks to 

be done before Labor could be upgraded to a green status score: (1) 

53A material weakness is a condition that precludes the entity’s internal control from 

providing reasonable assurance that misstatements, losses, or noncompliance material in 

relation to the financial statements would be prevented or detected on a timely basis. 
Page 45 GAO-03-31 FFMIA FY 2001 Results

integrate its financial and performance management systems, (2) complete 

remedial actions for Wage and Hour’s Back Wage and Civil Monetary 

Penalties Systems, (3) develop and implement a plan to reduce erroneous 

unemployment insurance payments, and (4) implement a cost accounting 

system. 

Two agencies, NASA and SBA, have been downgraded from yellow to red. 

NASA’s score was lowered because its auditors issued a disclaimer of 

opinion on NASA’s financial statements and determined that its systems 

were not in compliance with FFMIA. Similarly, SBA’s auditors determined 

that its systems were not in compliance with FFMIA and reported one 

material weakness and three reportable conditions relating to SBA being 

unable to provide timely, complete, and reliable financial statements. 

The administration assesses “progress” on a case-by-case basis against the 

deliverables and timelines established for the five initiatives that have been 

agreed upon with each agency. According to the progress scores on the 

Executive Branch Management Scorecard, the majority of the agencies are 

proceeding according to their plans, receiving a “green light,” while a few 

are slipping or require further adjustments in order to achieve their 

objectives timely, receiving a “yellow light.” The Department of Interior 

was the only agency that received a “red light” on “progress” because it has 

failed to make progress on its financial performance agenda.

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

to deliberate and reach agreements focused on key financial management 

reform issues. This forum provides 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 improving federal financial management. In these meetings, the 

Principals have focused on key issues such as the following.

• Defining success measures for financial management performance that 

go far beyond an unqualified audit opinion on financial statements and 

include measures such as financial management systems that routinely 

provide timely, reliable, and useful financial information and no material 

internal control weaknesses or material noncompliance with laws and 

regulations and FFMIA requirements,

• Restructuring FASAB’s composition to enhance the independence of the 

board,
Page 46 GAO-03-31 FFMIA FY 2001 Results

• Establishing financial management committees for the federal 

government and the CFO Act agencies,

• Overseeing DOD’s business transformation efforts, 

• Consolidating and standardizing federal payroll systems to reduce the 

cost of routine operations, 

• Addressing the impediments to an audit opinion on the U.S. 

government’s consolidated financial statements, including 

intragovernmental transactions. The federal government’s current 

inability to properly account for these transactions hinders true cost 

transparency and impedes achievement of the goal of a clean opinion on 

the federal government’s consolidated financial statements. Therefore, 

OMB has been aggressively pursuing strategies regarding 

intragovernmental transactions to reform current practices in this area 

and Treasury has been working to change the process for compiling the 

consolidated financial statements,

• Accelerating financial statement reporting dates.

In deliberating on these issues, the Principals recognized that a clean audit 

opinion alone only provides credibility to an agency’s financial statements 

as of the date of the financial statements—the last day of the fiscal year. It 

provides no assurance about the effectiveness or efficiency of the financial 

systems used to prepare the statements, the quality of internal control, or 

whether the systems can produce reliable data for decision-making 

purposes on demand throughout the year. This recognition led to actions 

such as enhancing the criteria for measuring progress and achievement in 

the Executive Branch Management Scorecard as discussed above, and 

accelerating the dates for issuing the government’s financial statements. 

With these accelerated dates, the government’s financial statements will be 

issued in a more timely manner and will discourage costly efforts by 

agencies designed to obtain unqualified opinions on financial statements 

without addressing the underlying systems and data reliability challenges.

After the Principals’ endorsement, OMB acted by requiring agencies to 

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

Under the accelerated reporting requirements, agency performance and 

accountability reports for fiscal year 2002 are due to OMB by February 1, 

2003. OMB is further accelerating the deadline so that by fiscal year 2004, 

agencies will be required to submit these reports by November 15, 2004. In 
Page 47 GAO-03-31 FFMIA FY 2001 Results

addition, in fiscal year 2003, agencies will be required to prepare and 

submit quarterly financial statements no later than 45 days after the end of 

the reporting period. 

The JFMIP Principals have proven to be a collective driving force to 

communicate expectations, address impediments, and move the financial 

management agenda forward. Future meetings will enable the JFMIP 

Principals to reach agreements and monitor progress on strategies critical 

to the full and successful implementation of federal financial management 

reform.

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 

way they run programs. To achieve the financial management 

improvements envisioned by the CFO Act, FFMIA, and more recently, the 

President’s Management Agenda, agencies need to modernize their 

financial management systems to generate reliable, useful, and timely 

financial information throughout the year and at year-end. Meeting the 

requirements of FFMIA presents long-standing, significant challenges that 

will be attained only through time, investment, and sustained emphasis on 

correcting deficiencies in federal financial management systems.

To assess compliance with FFMIA, auditors need to perform detailed audit 

procedures that are more comprehensive and independent of those 

performed for rendering an opinion in a financial statement audit. Such a 

comprehensive and independent assessment of an agency’s financial 

management system is essential to improving the performance, 

productivity, and efficiency of federal financial management and achieving 

the President’s Management Agenda. In consultation with PCIE, we have 

jointly developed guidance as a part of GAO/PCIE FAM to assist auditors to 

comprehensively test for FFMIA compliance. However, without action 

from OMB to revise its guidance on FFMIA compliance testing and 

reporting, the audit community will continue to face conflicting guidance. 

Therefore, we reaffirm the recommendations we made in our annual
Page 48 GAO-03-31 FFMIA FY 2001 Results

FFMIA report last year54 that OMB specify expected procedures for 

auditors to perform when assessing FFMIA compliance as called for in 

GAO/PCIE FAM. This additional guidance should be principle based and 

should clearly outline (1) the minimum scope of work and (2) the 

procedures for auditors to perform in determining whether management 

has reliable, timely, and useful financial information for managing day-today operations. 

We also reaffirm our prior recommendations 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. Further, we 

reaffirm our prior recommendation that OMB continue to work with the 

CFOs, IGs, and GAO to explore further clarification of the definition of 

“substantial compliance” and to explain the appropriate use of the 

compliance indicators. Finally, we reaffirm our prior recommendation that 

OMB emphasize to auditors the significance of agencies’ ability to meet the 

Managerial Cost Accounting Concepts and Standards, given the crucial 

need for cost management information for measuring the results of 

program performance. 

The size and complexity of many federal agencies and the discipline 

needed to overhaul or replace their financial management systems present 

a significant challenge for many agencies. The significance of these issues, 

now and in the future, emphasizes the need for detailed remediation plans. 

As envisioned by the act, these remediation plans would help agencies 

establish seamless systems and processes to routinely generate reliable, 

useful, and timely information that would improve agencies’ accountability. 

Again this year, our analysis showed that while the quality of some of the 

plans had improved, many agencies’ remediation plans continue to lack key 

elements that could preclude the achievement of FFMIA objectives. 

Therefore, we reaffirm our prior recommendation that OMB continue to 

work with agencies to ensure that the remediation plans include all 

required elements and are not making new recommendations at this time 

related to remediation plans.

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, to 

54GAO-02-29. 
Page 49 GAO-03-31 FFMIA FY 2001 Results

ensuring that these needed modernizations come to fruition. This 

commitment is critical to the success of the efforts underway and 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.V) on a draft of this report, OMB 

agreed with our assessment that while many federal agencies are 

continuing to make progress, some agencies continue to have 

shortcomings in their financial management systems. OMB noted that 

changing its audit guidance to require positive assurance when reporting 

on FFMIA compliance would not necessarily measure the availability or 

quality of financial information, integral to the intent of FFMIA. As we 

discussed in the report, OMB officials acknowledged that they are 

currently updating their financial management policy guidance, including 

guidance related to financial management systems. OMB officials stated 

that once the update of its financial management policy guidance has been 

completed, new performance and results-based criteria will be used in 

future FFMIA assessments. OMB further stated that it will reconsider 

revising its FFMIA audit guidance once its overall federal financial 

management policy has been finalized. 

OMB also commented on our affirmation of our prior recommendation that 

it continue to work with the agencies to ensure that remediation plans 

include all of the required elements. As we state in the report, most of the 

agencies did not include resource requirements for accomplishing 

corrective actions in their remediation plans, as required by FFMIA. OMB 

agrees that the stand-alone agency remediation plans do not necessarily 

include resource information, but noted that agencies have been instructed 

to include this information in their OMB Circular A-11 budget submissions. 

OMB officials added that a more comprehensive review and assessment of 

agency plans to correct FFMIA problems is conducted as a part of OMB’s 

annual budget process. While OMB’s multidisciplinary approach to 

reviewing agency remediation plans appears to have prompted 

improvements in the plans, we cannot determine whether the required 

resource information not found in the stand-alone remediation plans is 

included in the budget submission information required under OMB 

Circular A-11 because we did not have the agency budget submissions. 

These documents are subject to change, and OMB considers the budget 

submissions predecisional. Therefore, we based our review on the standalone remediation plans received from the agencies directly. In reviewing 

these plans, we found no references to other parts of the agency budget 

submissions that might include resource information. Unless we review 
Page 50 GAO-03-31 FFMIA FY 2001 Results

agency budget submissions, we will only be able to report on the contents 

of the stand-alone remediation plans. 

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 Oversight of Government Management, 

Restructuring, and the District of Columbia, Senate Committee on 

Governmental Affairs; and to the Chairman and Ranking Minority Member, 

Subcommittee on Government Efficiency, Financial Management, and 

Intergovernmental Relations, House Committee on Government Reform. 

We are also sending copies to the Director of the Office of Management and 

Budget, the Secretary of the Treasury, the heads of the 24 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 VI.

David M. Walker 

Comptroller General

Of the United States 
Page 51 GAO-03-31 FFMIA FY 2001 Results

Appendix I

Publications in the Federal Financial Apendxies

Management Systems Requirements Series ApendxiI

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 

Requirements

April 1999

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 

Requirements

December 1999

JFMIP-SR-00-01 Guaranteed 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-01-1 Benefit System Requirements September 2001

JFMIP-SR-02-02 Acquisition/Financial Systems Interface 

Requirements

June 2002
Page 52 GAO-03-31 FFMIA FY 2001 Results

Appendix II

Statements of Federal Financial Accounting 

Concepts, Standards, and Interpretations ApendxiI

Concepts

SFFAC No. 1 Objectives of Federal Financial Reporting

SFFAC No. 2 Entity and Display

SFFAC No. 3 Management’s Discussion and Analysis

Standards

Effective for 

fiscal yeara

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 Standards for the Federal Government in SFFAS No. 4

1998

SFFAS No. 10 Accounting for Internal Use Software 2001

SFFAS No. 11 Amendments to Accounting for Property, Plant, and 

Equipment—Definitional Changes

1999

SFFAS No. 12 Recognition of Contingent Liabilities Arising from 

Litigation: An Amendment of SFFAS No. 5, Accounting for Liabilities of 

the Federal Government

1998

SFFAS No. 13 Deferral of Paragraph 65-2—Material Revenue-Related 

Transactions Disclosures

1999

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 

Equipment

2000

SFFAS No. 17 Accounting for Social Insurance 2000

SFFAS No. 18 Amendments to Accounting Standards for Direct Loans 

and Loan Guarantees in SFFAS No. 2

2001

SFFAS No. 19 Technical Amendments to Accounting Standards for 

Direct Loans and Loan 

Guarantees in SFFAS No.2

2003

SFFAS No. 20 Elimination of Certain Disclosures Related to Tax 

Revenue Transactions by the Internal Revenue Service, Customs, and 

Others

2001

SFFAS No. 21 Reporting Corrections of Errors and Changes in 

Accounting Principles

2002
Appendix II

Statements of Federal Financial Accounting 

Concepts, Standards, and Interpretations

Page 53 GAO-03-31 FFMIA FY 2001 Results

a

Effective dates do not apply to Statements of Federal Financial Accounting Concepts and 

Interpretations.

Standards

Effective for 

fiscal yeara

SFFAS No. 22 Change in Certain Requirements for Reconciling 

Obligations and Net Cost of Operations

2001

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
Page 54 GAO-03-31 FFMIA FY 2001 Results

Appendix III

AAPC Technical Releases ApendxiI

Technical release

AAPC 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 Subsidies 

Under the Federal Credit Reform Act

July 31, 1999

TR-4 Reporting on Non-Valued Seized and Forfeited Property July 31, 1999

TR-5 Implementation Guidance on SFFAS No. 10: Accounting for 

Internal Use Software

May 14, 2001
Page 55 GAO-03-31 FFMIA FY 2001 Results

Appendix IV

Checklists for Reviewing Systems Under the 

Federal Financial Management Improvement 

Act ApendxiIV

Checklist Issue date

GAO/AIMD-98-21.2.1 Framework for Federal Financial Management 

System Checklist

May 1998

GAO/AIMD-00-21.2.2 Core Financial System Requirements Checklist February 2000

GAO/AIMD-00-21.2.3 Human Resources and Payroll Systems 

Requirements Checklist

March 2000

GAO/AIMD-98-21.2.4 Inventory System Checklist May 1998

GAO/01-99G Seized Property and Forfeited Assets Systems 

Requirements Checklist 

October 2000

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 

Accounting Checklist

January 1999

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 

Checklist

December 2001

GAO-02-762G Benefit System Requirements (Exposure Draft) September 2002
Page 56 GAO-03-31 FFMIA FY 2001 Results

Appendix V

Comments From the Office of Management 

and Budget ApendxiV
Page 57 GAO-03-31 FFMIA FY 2001 Results

Appendix VI

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Sally E. Thompson, (202) 512-9450

Kay L. Daly, (202) 512-9312

Acknowledgments In addition to those named above, Rosa R. Harris, William S. Lowrey, Debra 

S. Rucker, Sandra S. Silzer, and Bridget A. Skjoldal made key contributions 

to this report.

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