Erroneous payments cost government $20 billion in 2001

The federal government made $20 billion in erroneous payments in fiscal 2001, the Office of Management and Budget said Friday in a report to Congress outlining the poor state of financial management in the government. The report, required by law, listed a litany of financial management problems that the Bush administration pledged to tackle. Across the government, yearly financial statements are not published until five months after the end of the fiscal year, compared to a few weeks' lag time in the private sector. Few agencies do a good job of linking costs with program performance. With very few exceptions, managers at federal agencies don't accurately track the flow of money through their organization on an ongoing basis and most cannot directly link the money they spend to meaningful performance measures.

While there has been modest improvement over the years-18 of 24 agencies earned clean audit opinions for fiscal 2001, up from 10 in 1997-there is continued frustration that annual financial statements and information within are essentially useless.

"What we need is a greater focus on financial management and greater visibility," OMB Comptroller Mark Everson said in a recent interview with Government Executive. "That is what we are trying to do. You can't get there by incremental progress. You need dramatic change." In a move that is sure to create headaches in many government finance and accounting offices, OMB said in the report that it has shortened the reporting deadline for annual reports. Fiscal 2002 and 2003 financial statements are due to OMB by Feb. 1 Currently, they are issued at the beginning of March. Starting in 2004, year-end reports will be due Nov. 15, just a month and a half after the end of the fiscal year. Agencies will also be required to produce quarterly statements for the first time. As an effort to more closely align budget and program performance, agencies will also be required to submit combined performance and accountability reports. OMB Director Mitch Daniels recently said that ineffective programs could lose their funding or face elimination. Other concerns outlined in the report include:

• Physical and financial assets. The government has assets worth an estimated $900 billion. But that estimate is incomplete because it does not "include natural resources, stewardship land, national defense assets, or heritage assets," the report said. OMB is trying to develop measures that would hold agencies more accountable for keeping tabs on their assets.
• Material weaknesses. "Federal agencies are plagued by repeat material control weaknesses--areas so problematic year after year that they detrimentally affect the reliability of financial information and could endanger program delivery," the report said. Problems range from computer security to accounting programs.
• Financial management at the Defense Department. "The problems are pervasive, complex, long-standing, and deeply rooted in virtually all business operations throughout the department," the report said. DoD recently hired IBM to cut its number of financial management computer systems from more than 1,000 to about 100.

Federal managers don't fully understand the value of having timely, accurate financial data, according to Donald Hammond, fiscal assistant secretary at the Treasury Department. "Once they see it, though, they'll be banging down the doors to get it," he said. "With the accelerated deadlines, we'll create a culture which feeds on itself and demands more information and different kinds of information."