Prior to passage of the CFO Act in 1990, the seemingly never ending disclosures of fraud, waste, abuse, and mismanagement in federal programs painted a picture of a government unable to manage its programs, protect its assets, or provide taxpayers with the effective and economical services they expect. As the Comptroller General pointed out around the time the CFO Act was passed, the problems that existed were not limited to a few agencies or a few programs; rather, all of the major agencies had serious problems. For years, GAO and the Inspectors General had reported a litany of problems that resulted in wasteful spending, poor management, and losses totaling billions of dollars. In some cases, the government’s ability to carry out crucial programs had been severely hampered. The financial management environment was in such disarray that not only were audited annual financial statements not required, most in the federal financial management community did not even see the value of annual financial reporting. The need for federal financial statements was an area of major disagreement. Budgeting was what financial management was all about, and accountability for how the money was being spent was not the priority. Federal managers in the government were more concerned with the budget and did not focus on improved financial management. Concerned about the ever-growing problems in federal financial management and the need for a more integrated, comprehensive, and systematic approach to reform, in 1985 the Comptroller General issued a two-volume report entitled, Managing the Cost of Government: Building an Effective Financial Management Structure. This report laid out the nature and scope of the problem and provided the conceptual framework for the reforms needed to improve the federal financial management and therefore, manage the cost of government. Problems included the poor quality of financial management information and antiquated financial management systems, with recommended reforms such as strengthened accounting, auditing, and financial reporting and the systematic measurement of performance. In addition, GAO and the Office of Management and Budget (OMB) conducted separate studies of “high risk” programs that demonstrated breakdowns in internal control affecting hundreds of billions of dollars. Since January 1990, GAO has designated certain federal programs and operations as high risk because of their greater vulnerabilities to fraud, waste, abuse, and mismanagement. The increased awareness of the nature and extent of high-risk programs further bolstered the need for broad-based congressional action. While the federal government had not made concerted progress in reforming financial management, state and local governments had moved beyond the federal government in this area because of key factors including federal legislation such as the Single Audit Act of 1984. The Single Audit Act of 1984 established financial audit requirements for state and local governments that receive federal financial assistance in excess of certain dollar thresholds in any fiscal year. The Single Audit Act also included a requirement for independent auditors to review whether state and local governments have adequate internal control over federal funds. The need to comply with this law prompted states and local governments to focus on improving financial management and accountability. In the 1980s, many states began producing financial reports based on generally accepted accounting principles to provide a more complete picture of their financial situation. Consequently, in 1990, many in the financial management community believed that state and local governments were ahead of the federal government. To address the underlying problems that plagued federal financial management in March 1986, Senator William Roth introduced S.2230, the Federal Management Reorganization and Cost Control Act of 1986. Over the ensuing 4½ years, the concepts in S.2230 were refined and debated. What resulted was the CFO Act of 1990. The CFO Act, with bipartisan and bi-cameral support, had as its principle sponsors Senators John Glenn and William Roth and Representatives John Conyers and Frank Horton. Signed into law by President George H.W. Bush on November 15, 1990, the CFO Act was the most comprehensive and far-reaching financial management improvement legislation since the Budget and Accounting Procedures Act of 1950. The CFO Act established a leadership structure, provided for long- range planning, required audited financial statements, and strengthened accountability reporting. The CFO Act was the beginning of a series of management reform legislation to improve the general and financial management of the federal government, and laid the foundation for other key legislative reforms that followed a common thread of increased accountability and better management practices. The first legislation that followed the CFO Act was the Government Performance and Results Act of 1993 (GPRA), which requires agencies to develop strategic plans, set performance goals, and report annually on actual performance compared to goals. GPRA was followed by the Government Management Reform Act of 1994 (GMRA), which made permanent the pilot program in the CFO Act for annual audited agency-level financial statements, expanded this requirement to all CFO Act agencies, and established a requirement for the preparation and audit of governmentwide consolidated financial statements. The Federal Financial Management Improvement Act of 1996 (FFMIA) built on the foundation laid by the CFO Act by reflecting the need for CFO Act 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. The Clinger-Cohen Act of 1996 (also known as the Information Technology Management Reform Act of 1996) sets forth a variety of initiatives to support better decision making for capital investments in information technology, which has led to the development of the Federal Enterprise Architecture and better-informed capital investment and control processes within agencies and across government. The Accountability of Tax Dollars Act of 2002 (ATDA) required most executive agencies that are not otherwise required, or exempted by OMB, to prepare annual audited financial statements and to submit such statements to Congress and the Director of OMB. Lastly, the Department of Homeland Security Financial Accountability Act of 2004 added the Department of Homeland Security (DHS) to the list of CFO Act agencies. As shown in figure 1, if successfully implemented, these reforms provide a solid basis for improving accountability of government programs and operations as well as routinely producing valuable cost and operating performance information. The enactment of the CFO Act represented a broad-based recognition that federal financial management was in great need of fundamental reform. Key elements of the CFO Act require centralized financial management leadership, both governmentwide and at the agency level, and as expanded by GMRA, agency-level and governmentwide annual audited financial statements. To facilitate stewardship and accountability at executive branch agencies, the CFO Act designated CFOs with broad responsibility for modernizing financial management systems, financial reporting, asset management, and strengthened internal control practices. The systematic measurement of performance, the development of cost information, and the integration of financial management systems are some of the financial management practices called for by the CFO Act that, if properly implemented, will significantly improve financial management throughout the federal government. Furthermore, the Act statutorily designates the 24 executive departments and agencies covered. These 24 departments and agencies represent 95 percent of net outlays in fiscal year 2004. Strong centralized leadership is essential to solving the government’s long- standing financial management problems. The CFO Act provided for such leadership by giving OMB broad new authority and responsibility for directing federal financial management, modernizing the government’s financial management systems, strengthening financial reporting, and internal control. The CFO Act also created a new position in OMB, the Deputy Director for Management, who serves as the government’s chief official responsible for financial management. In addition, the CFO Act established a new Office of Federal Financial Management (OFFM) in OMB to carry out the government-wide financial management initiatives and responsibilities. To head this office, the CFO Act established the position of Controller, an individual who must possess demonstrated ability and practical experience in accounting, financial management, and financial systems. This individual has responsibility for handling the day- to-day operations of OFFM to ensure that financial operations are being properly carried out government-wide. Executive-level leadership is a critical success factor for building a foundation of control and accountability that supports external reporting and performance management, which is needed to achieve the goals of the CFO Act. For this reason, an agency CFO must be a key figure in an agency’s top management team. The CFO Act stipulates that the CFO is a presidential appointee or appointed by the agency head and is assisted by a Deputy Chief Financial Officer. Both the CFO and the Deputy CFO generally must possess demonstrated ability in accounting, budget execution, financial and management analysis, systems development, and practical experience in financial management practices in large governmental or business entities. Among the CFO’s responsibilities are developing and maintaining integrated accounting and financial management systems, directing, managing, and providing policy guidance and oversight of all agency financial management personnel, activities, and operations, and overseeing the recruitment, selection, and training of personnel to carry out agency financial management functions. In addition, each CFO for the 24 agencies serves on the Chief Financial Officers Council, which regularly meets to advise and coordinate the activities of the agencies of its members on such matters as consolidation and modernization of financial systems. The CFO Act created the council and specified that the council will be chaired by OMB’s Deputy Director for Management. Other members will be OMB’s Controller and the Department of the Treasury’s Fiscal Assistant Secretary. The CFO Act, as expanded by GMRA, required that annual financial statements be prepared and audited for each CFO Act agency covering all accounts and associated activities of each office, bureau, and activity of the agency. The CFO Act also requires that the financial statements prepared pursuant to the act be audited in accordance with applicable generally accepted government auditing standards. These audits are the responsibility of the Inspectors General, but may be conducted by, and at the discretion of, the Comptroller General, in lieu of the Inspectors General.