Officials: Government’s finances still are not in order, despite progress

While touting significant improvement in financial management and reporting for fiscal 2007 and in recent years, key officials said Thursday they know it's not enough.

For the 11th consecutive year, long-standing roadblocks prevented the Government Accountability Office from issuing an opinion on the government's fiscal 2007 consolidated financial statements. Serious financial management problems at the Defense Department, the government's inability to account for and reconcile transactions among agencies, and ineffective processes for preparing financial statements were the primary factors preventing GAO from signing off on an opinion, acting comptroller general Gene Dodaro said in testimony prepared for a scheduled hearing of the House Oversight and Government Reform subcommittee.

While GAO couldn't vouch for the reliability of the government's consolidated financial statements, many agencies were successful in financial management and reporting in fiscal 2007. Nineteen of 24 agencies covered under the 1990 Chief Financial Officers Act received unqualified audit opinions on their financial statements last fiscal year. In 1996, only six accomplished that feat.

Daniel Werfel, deputy controller for the Office of Management and Budget, said in his prepared testimony that attaining clean audit opinions was one of the financial management goals OMB was working with agencies to achieve. Other goals included improving significant internal control weaknesses, achieving timely financial reporting, disposing of unnecessary real property and eliminating improper payments.

To achieve these goals, Werfel urged federal managers to take a risk-based approach by strengthening accounting practices and internal controls in areas most likely to face problems.

Another important goal for OMB, Werfel said, was ensuring that agency and governmentwide financial reports were accessible and readable. OMB started a pilot program in 2007 to issue highlights of agencies' performance and accountability reports and wants to expand this program. In 2008, financial reports will be available comprehensively, in addition to a two-page summary and a 25-page "Citizens' Report."

Managing the finances of the federal government is a daunting task. The Defense Department alone processes more than 154 million pay transactions annually and distributes more than $446 billion to payroll recipients and commercial vendors.

"The department's annual base budget is almost 50 percent greater than the annual revenues of Wal-Mart; its assets [are] three times the size of Wal-Mart, IBM and Exxon Mobil combined," said David Patterson, principal deputy undersecretary, in prepared testimony. "In fact, if the Department of Defense were a country, it would rank 17th among the economies of the world."

Auditing and financial reporting must not become excessively burdensome, Werfel said. "OMB, GAO and Congress must work together to ensure that the financial management requirements we impose on federal agencies strike an appropriate balance between the costs of agency efforts with the benefits they ultimately deliver for the taxpayer," he said.

Government Management, Organization and Procurement Subcommittee Chairman Edolphus Towns, D-N.Y., lauded the significant progress agencies have made in his written opening statement for the hearing.

Dodaro noted the challenge of sustaining progress through a political transition.

"It is important that this progress be sustained by the current administration as well as the new administration that will be taking office next year and that the Congress continues its oversight to bring about needed improvements to federal financial management," Dodaro said.

Congress and federal policymakers must have complete and reliable financial and performance information in order to address many of the looming fiscal challenges, including Medicare and Social Security, Dodaro said. "Sound decisions on the current results and future direction of vital federal government programs and policies are more difficult without such information."