GAO report finds agencies' financial systems inadequate

Most federal agencies continue to lack the financial data needed to manage daily operations efficiently and effectively and to provide an acceptable level of accountability. Despite that, most agencies covered by the CFO Act have obtained clean or unqualified audits on their financial statements, according to a new Government Accountability Office report.

The problem lies with agencies' underlying systems, GAO said in the report. Auditors need to perform more comprehensive examinations than those needed for an opinion about an agency's financial statements. And the Office of Management and Budget should tighten rules so that auditors report whether an agency complies with the broader requirements of the Federal Financial Management Improvement Act (FFMIA).

"The size and complexity of the federal government presents a formidable management challenge to modernize and improve its financial management systems that will require continued attention from the highest levels of government," said Comptroller General David Walker in the report, released yesterday.

In fiscal 2004, 16 of the 23 major agencies failed to comply with the financial management regulation. Problems included nonintegrated financial management systems, inadequate reconciliation procedures, inaccurate or slow recording of financial information, lack of adherence to federal accounting standards and weak system security, according to GAO.

OMB requires agency auditors only to provide it with assurances that nothing glaringly wrong came to their attention about the agencies' financial management systems. It does not, however, mean that the systems comply with FFMIA, GAO said. OMB continues to advance other initiatives to improve federal financial management, the report said.

By contrast, auditors for the Labor Department reported how the department's systems complied with the regulation. Labor's auditors plan this year to focus on the reliability and use of managerial cost data.

OMB responded that requiring a statement from auditors as to whether agencies complied with overall financial management requirements would prove only marginally useful. Performance standards incorporated into the President's Management Agenda and its ongoing efforts to update policy guidance, such as under Circular A-123, could provide a more accurate assessment.

The Defense Department is the biggest violator of financial management best practices. "Little tangible evidence of significant broad-based and sustainable improvements has been seen in DOD's business operations," Walker said.

The Homeland Security Department will be subject to the financial management requirements for the first time this year.

Mary Mosquera is a staff writer for Washington Technology's sister publication, Government Computer News.