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 provide reliable, useful, and timely financial 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. FFMIA is part of a series of management reform legislation passed by the Congress over the past two decades. This series of legislation started with the Federal Managers’ Financial Integrity Act of 1982 (FIA), which the Congress passed to strengthen internal control 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 Government provide the standards that are directed at helping agency managers implement effective internal control, an integral part of improving financial management systems. Effective internal control also helps in managing change to cope with shifting environments and evolving demands and priorities. As programs change and as 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 1, the combination of reforms ushered in by (1) the CFO Act of 1990, (2) the Government Management Reform Act (GMRA) of 1994, (3) FFMIA, (4) GPRA, and (5) the 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. The financial management systems 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 System 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 also issues financial system requirements for both administrative and programmatic financial management systems. Administrative systems include those generally common to all federal agency operations such as budget, acquisition, travel, property, and payroll. Agencies implement programmatic systems as needed to fulfill the agency’s mission, such as inventory, grants, insurance and benefit payments, and loans. For example, SSA would need a benefit payment system to fulfill its mission of providing social security and disability payments to the elderly and disabled. However, SSA would not need to implement a loan system since it does not process loans. Figure 2 is the JFMIP model that illustrates how these systems interrelate in an agency’s overall systems architecture. The first of JFMIP’s system requirements documents covering the core financial systems requirements was issued in 1988. Since then, JFMIP has been issuing system requirement documents covering specific functional areas, such as inventory systems. Most recently, JFMIP issued an exposure draft on Benefit System Requirements in May 2001, and has an ongoing project underway to develop system requirements for acquisition systems. Appendix I lists the current publications in the FFMSR series and their issue dates. JFMIP recently updated and revised the Core Financial System Requirements and issued an exposure draft in June 2001. JFMIP tests vendor COTS packages and certifies that they meet current financial management system requirements for core financial management systems. To maintain a certificate of compliance, vendors with qualified software packages must successfully complete any incremental tests required by JFMIP. These tests are conducted to ensure that vendor software offerings are aligned with current federal financial management requirements. Federal accounting standards, which agency CFOs use in preparing financial statements and in developing financial management systems, are promulgated by the Federal Accounting Standards Advisory Board (FASAB). FASAB develops 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 now recognizes 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 19 statements of federal financial accounting standards (SFFAS) and 3 statements of federal financial accounting concepts (SFFAC). The concepts and standards are the basis for OMB’s guidance to agencies on the form and content of their financial statements and the government’s consolidated financial statements. Appendix II lists the concepts, standards, and interpretations along with their respective effective dates. FASAB’s Accounting and Auditing Policy Committee (AAPC) 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 Bulletin and Audit Bulletin. To date, AAPC has released five technical releases, which are listed in appendix III along with their release dates. The SGL was established by an interagency task force through 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, 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. 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 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, remediation plans are to include corrective actions, intermediate target dates, and resources necessary to bring the financial management systems into substantial compliance with FFMIA’s requirements within 3 years of the date the agency head’s noncompliance determination is made. If, with the concurrence of the Director of OMB, the agency head determines that substantial compliance cannot be reached 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 A- 11, Preparing and Submitting Budget Estimates, effective July 19, 2000, agencies are to include their remediation plans in their annual budget submissions due to OMB by December 15, 2000. 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 the systems into substantial compliance with FFMIA. Under its mandate to set governmentwide financial management policies and requirements, OMB currently has two sources of guidance related to FFMIA. First, OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, prescribes specific language auditors should use when reporting on compliance with FFMIA. Second, in a January 4, 2001, memorandum, OMB revised its implementation guidance for agencies and auditors to use in assessing compliance with FFMIA. The revised implementation guidance is to be used for financial reports and audits for fiscal year 2000 and thereafter. This guidance (1) describes the factors that should be considered in determining an agency’s systems compliance with FFMIA and (2) provides guidance to agency heads to assist in developing corrective action plans for bringing their systems into compliance with FFMIA. Examples are also provided on the types of indicators that should be used as a basis in assessing whether an agency is in substantial compliance with FFMIA.