Agencies continue to make strides in financial management

All major agencies met financial reporting deadlines for the third year in a row, completing the audit process within 45 days of Sept. 30, the end of fiscal year, the Office of Management and Budget reported Monday. The audit results show continued improvement in financial management and accounting, OMB officials said.

The deadline for submitting complete financial reports was shortened to 45 days from 150 days in 2001. Clay Johnson, deputy director for management at OMB, said Monday that revising the deadline forced agencies to improve their financial management year-round.

"If your goal is 45 days, it suggests that the report is a means to an end, that you have the rigors and the disciplines and the habits in place throughout the year to allow you to tell on a monthly or weekly basis that the money is where it's supposed to be," Johnson said.

In addition, agencies are gradually improving their overall financial management. Nineteen of the 24 major federal agencies received clean audits for fiscal year 2007, one more than last year. And the number of governmentwide material weaknesses dropped to 39 from 41 last year, for a 35 percent decrease in material weaknesses since 2001.

Material weaknesses are management or accounting deficiencies deemed by auditors to be significant enough to note in the final report. Danny Werfel, acting controller for OMB's Office of Federal Financial Management, said the decline in material weaknesses was particularly noteworthy in light of recent changes to government audit guidelines.

"Despite definitions changing and the standards getting tougher, you're still seeing, on a governmentwide basis, material weaknesses declining," Werfel said. "As the audit standards are getting tougher, agencies are not only keeping pace but exceeding pace."

Thirteen agencies received clean audits with no material weaknesses noted. Five of them -- the Justice, Interior, and Energy departments, the Small Business Administration and the U.S. Agency for International Development -- did not meet that mark last year.

"Some of these accomplishments are things that five or 10 years ago most people would have said were impossible to accomplish … [some] are not only for the first time in federal government, but much to everyone's surprise," Johnson said.

Werfel said agencies also are working hard to report on and eliminate improper payments, which can mean anything from an incorrect amount or recipient to a payment for an unallowable service to insufficient documentation to prove a payment was proper. This year, 13 more programs took part in improper payment reporting; almost 86 percent of high-risk programs reported on improper payments this year, up from 81 percent last year. Werfel said publication of improper payments not only identifies problem areas but motivates agencies to address themquickly.

The agency said the majority of errors identified in the 13 new reporting programs were instances in which there was insufficient documentation to verify the accuracy of a claim or propriety of a payment. "Errors in these 13 programs will decrease significantly after correcting the root cause of the insufficient documentation errors," OMB added.

The government's largest spender by far, the Defense Department, continued to come up short in the area of financial management. Johnson said the department did not receive a clean audit, and likely won't for years to come, because it has chosen to make thorough reform a higher priority than a clean audit.

"The decision was made by the department, with our support and Congress' support, to focus on changing the financial management practices at the Department of Defense to get to where they have good stewardship of the money they were spending and of what they owned and what they were buying and have that better financial management be reflected in a clean audit opinion," Johnson said. "It's going to take several years to do it; it's probably in the five- to 10-year range."

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