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The Agriculture and Education departments made substantial strides in financial management by creating new leadership teams, seeking help from outside experts and improving their accounting systems, agency officials told lawmakers Tuesday.

In fiscal 2002, Agriculture received its first clean audit ever and Education received its first clean opinion since 1997. All but three of the 24 agencies covered by the 1990 Chief Financial Officers Act received clean audits in fiscal 2002, up from 18 agencies in fiscal 2001 and fiscal 2000. Even so, the government still flunked its overall audit for the sixth straight year, and financial management is a continuing concern.

"There are many of us in Congress who believe that a clean financial audit tells only a small part of the story," said Rep. Todd Platts, R-Pa., chair of the House Subcommittee on Government Efficiency and Financial Management. "All too often we hear stories of agencies that achieve clean opinions only through last minute heroic efforts, or recreating their books at the end of the year."

But Agriculture and Education received their clean opinions as a result of substantive management reforms, Platts said. "They have retooled business and accounting processes and placed greater emphasis on data integrity, internal controls and getting results from their programs." Platts asked them to share their success stories with his committee, in hopes that they would offer useful advice to other agencies.

The Education Department has a history of problems with estimating the extent of outstanding loans and the anticipated losses from defaults on these outstanding loans, testified Jack Martin, chief financial officer at the department. These problems stood in the way of a clean audit.

To address the issue, President Bush appointed Martin, the agency's first chief financial officer in three years, and instructed his office to work with leaders at the department's offices of Federal Student Aid and Budget Service to root out problems. In addition, the department altered its leadership structure so that one person is in charge of managing the audit process. This person communicates with auditors and consolidates data gathered during the audit.

The Education Department hired outside financial advisors from the Council for Excellence in Government and the National Academy of Public Administration. The department revamped its accounting system as well. Under the new system, called Oracle Federal Financials, managers receive more timely, accurate and reliable information, Martin said. Managers can now generate financial reports directly from the accounting system on a monthly basis.

The Agriculture Department built a leadership team to oversee financial management and ensure that team members felt invested in achieving "tangible results," Edward McPherson, chief financial officer at the department, testified. Agriculture also improved its financial management by creating a standardized accounting system. About 17 systems needed to be converted to the new, standard system.

Agriculture also put pressure on the Forest Service, an agency within the department, to shape up its finances, McPherson said. As a result, the Forest Service made "significant progress" in fiscal 2002 and was able to better reconcile its financial statements with records kept at the Treasury Department. The Forest Service remains on the General Accounting Office's "high risk" list for management problems, but in a recent report, the watchdog agency praised its attempts at improving financial management. But the report added that these attempts sometimes came at the expense of other needed management reforms.

COMMENTS

• Trouble with financial management is the objective is to have a clean audit, not useful information. This generally means an unqualified audit opinion, or a qualified opinion. There is no consideration of the value of the information or appropriateness of the process. For example, for environmental liabilities there is no consideration of the timing of the cost and no standard for determining the cost. Also, operating expenses (long term monitoring)are included in the estimate. This is the problem at WorldCom. The information is of little use for management of the process. However,we are spending millions to comply with audit opinions that never consider the cost, or the benefits derived. You will not find an estimated liability for environmental outside of the regulated monopolies in the private sector. The regulated monopolies gain higher rates by estimating environmental liabilities that increase share prices. The government charge has been to require accrual accounting in a funds system of appropriation. If the executive branch is to operate on an accrual methodology, the Congress should appropriate a lump sum for operations of the government and establish a capital budget to fund long term significant investments in assets or to pay for liabilities. Congress shoujld allow the executive branch to manage without being tied to specific appropriations. There would be just two appropriations. One for annual operations and one for capital investment. However, the Congress would have to define how to determine what capital investment the government should make. The fact that there is no profit, or return, objective in government means the criterion for capital investment is a political decision. Congress, remember that every time you introduce a new environmental requirement. The new requirement either increases the annual operating costs and/or increases the liabilities. In either case the Congress has to appropriate the money to pay for the items. Currently Congress does not do that and operating funds are diverted from the main missions of the agencies into the environmental requirements passed by Congress without proper funding. That is one of the major reasons that buildings and equipment are not maintained properly in the government. GovExec.com reader Posted June 11, 2003 7:38 AM