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Agencies have been slow to improve on the financial management portion of the Bush administration's management score card partly because some are in the midst of technology upgrades that may take years, a White House official said.

While agencies made notable improvements in four of the five categories on the Office of Management and Budget's latest traffic-light-style score card, released a week ago, none moved up a notch in financial management. The majority still received red lights, the lowest rating, in that area.

Of the 26 agencies graded, 18 received failing marks in financial management. Only four merited a green light, indicating "success." The remaining four earned a yellow, denoting "mixed results." These marks reflect accomplishments as of March 31, the close of the second-quarter of fiscal 2004.

Movement on this portion of the score card may take a while because, in many cases, "upgrades depend on [the] implementation of new financial systems, which take many years," said an OMB official who asked to remain anonymous.

General Accounting Office research has shown that it could take as many as seven years to finish a new financial system. On average, the process takes four to five years, GAO concluded in an October 2003 report. GAO is working to update the report, and plans to release its findings this fall, an analyst said.

Agencies are also more likely to see improved grades in financial management following the completion of annual audits, since scoring standards are tied to the audits, the OMB official said.

To earn the highest rating in financial management, agencies must produce accurate financial data on demand, make financial information available to managers for use in daily decision-making, meet annual deadlines for submitting audit paperwork and obtain unqualified audit opinions. They also must demonstrate that they have addressed weaknesses in internal controls and are in full compliance with relevant laws and regulations, including the 1996 Federal Financial Management Improvement Act.

If properly implemented, new financial management systems should help agencies comply with FFMIA, GAO has concluded. The law requires agencies to maintain management systems capable of producing reliable, useful and timely financial information that can be applied to budget and policy decisions. Agencies generally have difficulty meeting all the requirements.

At the end of fiscal 2003, 17 of the 23 major agencies covered under the 1990 Chief Financial Officers Act had failed to meet at least one of FFMIA's mandates. GAO's report in October will analyze the most recent reasons for noncompliance. In past years, failure to maintain adequate security systems for financial data has been a common problem.

Though movement on financial management grades may be slow in coming, the White House doesn't intend to let up the pressure in this area. "There are no plans to adjust the criteria in the near future," the OMB official said.

Standards for financial management need to be fairly stringent, said John Kamensky, director of the Managing for Results Practice at IBM Business Consulting Services. "You do want the books to be balanced," he said. "So that's a place where it makes real sense to hold tight to those standards."

COMMENTS

• Paul - there is a private firm that has not reported financials for two years and it is Freddie Mac. Yes it is possible! Also, ENRO and Worldcom reported but the data were totally false and led to the biggest bankjruptcy in US history. That cost a lot of people their pension savings in whole or in part (me included) and the executives of those companies still are flying around on their jets having a good time - they should be in jail for the rest of their lives! Producing bad financial statements to meet some Congressional deadline is not a good idea. Also the task is not simple as you suggest because you are changing the entire accounting system for the federal government - it is not a simple change to the old process. tax payer Posted May 27, 2004 12:02 PM
• I'm simply amazed at how we in the government allow this insanity to continue. Can you imagine GM informing the SEC, stockholders, creditors and everyone else in a yearend financial report footnote that it's going to take years to upgrade its financial system? In the interim we'll do the best we can and we hope you understand. Oh, by the way we need to borrow a few million to finance a plant expansion in Fairbanks, Alaska. Send cash. Paul Strapac Posted May 25, 2004 3:53 PM
• As an extremely knowledgable person in financial management and as an employee involved in the DoD efforts I conclude the following: 1. The Congressional requirement is ridiculous. It requires that a government operation operating on a cash flow basis for budgets and execution change to an accrual reporting system. However, the cash basis will continue from appropriation to contract award and execution. This makes no sense and is a tremendous waste of money and effort! 2. The people hired for financial management do not have the educational or experience backgrounds necessary to insure proper control or reporting of financial data. Comptrollers do not have accounting training, cash management training or financial management training. Some represent retired military with MBAs, which is not the background necessary to develop and implement good financial controls and systems. 3. Congress wants to keep the status quo but wants the entire accounting and reporting system changed to reflect what "private secotr public firms do". This is not a private sector public firm and the goals are not financial per se. The goals are social and the financials simply reflect the money necessary to achieve the political goal. The financial system should be developed to control cash and reduce the ability to spend cash foolishly. It should insure accurate payments to contractors and suppliers in a timely manner. It should redfuce the probably for misuse and embezelment by government employees and outsiders. It should not be built to determine accrued liabilities that have no meaning now or in the future. The reason accounting and finance systems are being rebuilt is to satisfy a Congressional mandate that is not worth the money being spend! This is an employment bill for systems and financial people mainly in the Washington DC area but spread over the country. tax payer Posted May 25, 2004 1:04 PM