Financial Integrity Act:

The Government Faces Serious Internal Control and Accounting Systems Problems

AFMD-86-14: Published: Dec 23, 1985. Publicly Released: Dec 23, 1985.

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As part of its second governmentwide report on the Federal Managers' Financial Integrity Act of 1982 (FMFIA), GAO reviewed the internal control and accounting system problems facing the government and highlighted the problems which have hindered federal agency efforts to implement FMFIA.

GAO noted that: (1) widespread and long-standing weaknesses and breakdowns in agency internal controls continue to result in wasteful spending, poor management, and losses involving billions of dollars in federal funds; (2) internal control weaknesses have also made outright fraud more feasible; and (3) inadequate agency accounting systems and financial reports have contributed to the government's dilemma. GAO found that: (1) agencies reported that 53 percent of their accounting systems were not in conformance with the Comptroller General's requirements; (2) serious internal control problems continue in such areas as weapon systems procurement, social security, property management, and automatic data processing; (3) agencies have also reported that thousands of less serious weaknesses have been corrected which were collectively important and could have led to fraud, waste, and abuse; and (4) programs to evaluate internal control systems have not yet evolved to the point that agencies know whether their controls are adequate. GAO also found that: (1) although federal agencies generally identified their problems, their annual reports did not always provide an accurate, clear assessment of the overall status of their systems; (2) there is an inadequate basis for reporting on internal control weaknesses because the Office of Management and Budget (OMB) has not changed its reporting guidance, as GAO recommended; and (3) agency programs which evaluate internal control and accounting systems need further strengthening to ensure that weaknesses are identified and corrected.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB changed the reporting guidance, but did not fully accept this recommendation. It still prefers use of "taken-as-a-whole" wording, but does not oppose the recommended "except for" language. Several agencies now use both terms in their annual reports.

    Recommendation: The Director, OMB, should implement the prior recommendation to strengthen annual internal control reporting guidance to agencies. OMB must ensure that agencies disclose the bases for their positions on reasonable assurance, considering the weaknesses identified and the scope of evaluations. Specifically, OMB should revise internal control reporting guidance to incorporate the "except-for" reporting format of the House Committee on Government Operations whereby agencies would clearly disclose the significance of those systems which: (1) do not meet the act's requirements; and (2) have not yet been evaluated and for which the agency does not know whether or not they comply with the act's requirements.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: Although OMB has changed its reporting guidance, it still prefers the "taken-as-a-whole" language to the GAO recommended "except for" wording. Several agencies do, however, use both terms in their reports.

    Recommendation: The Director, OMB, should require that, for agency heads to elect the "taken-as-a-whole" reporting format, they must clearly demonstrate that those systems that do not comply, or have not been adequately evaluated, are not of such significance as to detract from the credibility of an opinion on the agency as a whole.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: Reporting guidance was changed and OMB now recognizes two distinct variations of "except-for" reporting which agencies can use to report on accounting systems' conformance. However, the guidance should be more prominently highlighted in either OMB Circular A-127 or OMB questions and answers to ensure that these reporting options are not overlooked by the agencies.

    Recommendation: The Director, OMB, should strengthen its guidance for reporting on accounting system conformance so that the annual report will clearly disclose the condition of an agency's accounting systems, applying the same criteria outlined for reporting on internal control systems. It should be clear which systems conform, which ones do not, and which ones have not been evaluated so that a conformance statement can be provided.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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