Agencies struggle to comply with financial management act

Federal agencies continue to have problems meeting the requirements of a 1996 law instructing them to get their finances in order.

A House Government Reform subcommittee Tuesday heard testimony from agency chief financial officers and other financial leaders on the challenges agencies face in following the Federal Financial Management Improvement Act (FFMIA).

Only three of the 23 agencies who submitted audit reports for fiscal 1999-the Department of Energy, NASA and the National Science Foundation-were in compliance with FFMIA. The State Department has yet to submit its financial report, which was due March 31.

"We recognize that federal departments and agencies face enormous challenges in correcting longstanding financial management systems problems. We also recognize that these challenges could take significant time and resources. However, we want to ensure that the intent of this act is taken seriously and that necessary changes are being made," said Rep. Stephen Horn, R-Calif., chairman of the Subcommittee on Government Management, Information and Technology.

FFMIA is one of a series of bills Congress enacted during the last decade to help the federal government improve its financial management and accounting systems. In 1990, Congress passed the Chief Financial Officers Act, which established agency CFOs for 24 departments. In 1994, the Government Management Reform Act, which required agencies to submit annual financial audits, took effect.

Under FFMIA, agencies must produce timely and reliable statements demonstrating their compliance with federal financial management systems requirements, federal accounting standards, and the U.S. government standard general ledger. If an agency believes its systems are not FFMIA-compliant, it must develop a remediation plan to achieve compliance within 3 years.

Last October, the General Accounting Office reported that agencies had not submitted timely remediation plans, and that most of the plans submitted did not comprehensively address financial management issues.

"That is unacceptable," said Horn.

Jeffrey C. Steinhoff, who heads GAO's Accounting and Information Management Division, identified five main reasons for agency difficulty in complying with FFMIA:

  • Nonintegrated financial management systems.
    Without a central, reliable financial system, data entry errors can occur, information cannot be reported in a timely manner and agencies often must resort to using more resources, such as hiring outside consultants to help them compile reporting information culled from disparate systems. Fourteen of the 20 noncompliant agencies reported nonintegrated systems as a problem in complying with FFMIA. The Defense Department, for example, relies on 168 different systems for its financial management.
  • Inadequate reconciliation procedures.
    Such procedures serve as a checklist for verifying financial data. The same way individuals make sure their checkbook balance matches up with their monthly bank statements, all of an agency's financial records must reflect the same data. Fourteen out of the 20 noncomplying agencies had problems reconciling accounting records.
  • Noncompliance with the standard general ledger.
    The general ledger provides a uniform chart of accounts and technical guidance used to standardize agency accounting. Agencies who do not properly use these standards to collect their financial information run the risk of obtaining unreliable and inaccurate data. This problem is compounded by nonintegrated management systems. Eleven of the 20 noncomplying agencies did not comply with standard general ledger requirements.
  • Lack of adherence to federal accounting standards. Currently there are 17 federal financial accounting standards, but emerging accounting issues means agencies need to be able to accommodate new standards continually. Fifteen of the 20 noncompliant agencies failed to meet one or more federal accounting standards.
  • Weak security over information systems.
    The onslaught of recent hacker attacks demonstrates the vulnerability of many federal information systems, putting the reliability and availability of financial data at risk. Nineteen out of 20 noncompliant agencies reported information security weaknesses as a problem in fiscal 1999.
Arnold Holtz, chief financial officer for NASA, said his agency achieved success by anticipating challenges, looking at alternative solutions and closely following FFMIA requirements. Although NASA does not have a centralized management system yet, the agency has created a financial classification system into which its different systems feed.

Office of Management and Budget Controller Joshua Gotbaum said the stovepipe structure of government makes it difficult for agencies to create efficient accounting systems. Gotbaum praised agencies for their efforts to get their finances in gear and to comply with FFMIA.

"Agency after agency has decided to undertake either a systems modernization or installation of an entirely new enterprise or financial management system," Gotbaum told the panel.

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