Most agencies still fail to comply with financial law, GAO finds

Although 21 of 24 major agencies received clean opinions on their fiscal 2002 financial statements, at least 19 of those agencies were not in compliance with standards established by a key financial management law, according to a new report from the General Accounting Office.

The agencies failed to meet requirements of the 1996 Federal Financial Management Improvement Act (FFMIA), the report (GAO-03-1062) said. That law requires the 24 major agencies covered by the 1990 Chief Financial Officers Act to maintain management systems capable of producing "reliable, useful and timely [financial] information" that can be applied to budget and policy decisions.

The 19 agencies not in compliance with FFMIA failed in at least one of six major areas-consolidation of disparate and duplicative financial management systems, maintenance of accurate and timely financial records, reconciliation of data discrepancies, maintenance of an adequate security system, adherence to federal accounting standards, and adherence to financial guidelines in the government's Standard General Ledger.

"While much more severe at some agencies than others, the nature and seriousness of the reported problems indicate that, generally, agency management does not yet have the full range of reliable information needed for accountability, performance reporting and decision making," GAO said.

Security was one of the largest problems noted by GAO, with 19 agencies failing to meet FFMIA standards. The number of agencies failing to produce accurate and timely financial information rose to 17 agencies in fiscal 2002, from 14 in the previous fiscal year.

But agencies did a better job of reconciling data discrepancies in fiscal 2002, with the number out of compliance in this area falling to 11 in fiscal 2002, down from 13 in fiscal 2001 and 16 in fiscal 2000, according to the report.

The Energy Department, Environmental Protection Agency, National Science Foundation, General Services Administration and Social Security Administration escaped criticism for FFMIA noncompliance in fiscal 2002, but GAO warned that this simply means auditors and inspectors general did not notice any flawed financial management practices at these agencies. Auditors and inspectors general were not actively looking for problems in these areas.

GAO took the National Science Foundation and Environmental Protection Agency off the FFMIA noncompliance list in fiscal 2002, but included the Labor Department. GAO conducts annual reviews of adherence to FFMIA. Last year, Congress' watchdog agency found that 20 of 24 agencies failed to comply with the law in fiscal 2001.

By the end of fiscal 2002, 17 of the 24 CFO Act agencies planned on establishing new financial management systems, GAO said. These systems should improve the agencies' compliance with FFMIA, the report predicted. GAO recommended that the agencies implement the systems as quickly as possible and "adopt leading practices, such as top management commitment and business process reengineering, to ensure successful systems implementation."