Government fails third annual financial audit

The government has failed the third annual audit of its financial statements, the General Accounting Office announced late last week.

At a hearing before the House Government Reform Subcommittee on Government Management, Information and Technology on Friday, Comptroller General David Walker said that most agencies' financial systems aren't in good shape. So far in 1999, 13 of the 24 largest agencies have received a clean opinion on their financial statements. A clean opinion is a sign of financial health.

Based on GAO's report, Subcommittee Chairman Stephen Horn, R-Calif., issued grades to each of the government's 24 largest agencies. As a whole, the government received a D+ for its fiscal 1999 audit.

But only the Department of Housing and Urban Development's grade dropped compared to last year. HUD received an F, down from a D+ in 1998. At least nine agencies improved their grades from 1998, but seven agencies were still handed F's, while only two, NASA and the National Science Foundation, got A's.

Walker applauded the Social Security Administration for its timeliness in completing its annual financial audit and congratulated the Energy Department for improving weaknesses in its financial statements. But the Defense Department was singled out as one of the worst examples of financial mismanagement in the federal government.

Still, agencies that received clean opinions on their audits aren't off the hook. Clean opinions can be misleading, Walker said, because "they do not guarantee that agencies have the financial systems needed to dependably produce reliable financial information."

The government's finances are still a tangled mess, with serious challenges remaining if they are to be straightened out in the future, Walker said. The federal government, he said, doesn't have accurate cost information, reliable data about loan programs, or reliable inventories that document its physical assets.

"I hope during my 15-year tenure I'll be able to express an unqualified opinion on the financial statements of the U.S. government," said Walker.

Governmentwide, a major challenge continues to be accounting for transactions between agencies, which often buy and sell services from each other. Assistant Treasury Secretary Donald Hammond said the Treasury Department is making progress on such transactions by disciplining agencies to routinely reconcile them.

Joshua Gotbaum, executive associate director and controller at the Office of Management and Budget, noted that just 10 years ago almost no agencies produced financial statements, much less had them audited.

In 1999, timeliness and quality of agency financial statements improved, Gotbaum said. "We expect much more in the coming years, for this is a process of years, not months."

Rep. Horn's Financial Management Status Report