Financial Integrity Act:

Inadequate Controls Result in Ineffective Federal Programs and Billions in Losses

AFMD-90-10: Published: Nov 28, 1989. Publicly Released: Nov 28, 1989.

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As part of its fourth governmentwide report on federal efforts to strengthen internal controls and accounting systems under the Federal Managers' Financial Integrity Act (FMFIA), GAO reviewed the types and severity of the internal control and accounting system problems that exist throughout the government and the need for a vigorous program to correct these problems.

GAO found that: (1) the federal government continued to experience management deficiencies, program abuses, and illegal activities that cost the taxpayers billions of dollars, which was serious given the overwhelming budget deficit; (2) major agencies reported such material weaknesses as delinquent debts and taxes, design flaws in expensive automated systems, inventory management problems, and antiquated, costly, and unreliable accounting systems; (3) agency executives and managers responsible for day-to-day operations perceived improved internal controls due to FMFIA, but identified a number of areas that needed greater emphasis; (4) almost one-half of the managers responsible for implementing FMFIA had received no training concerning the conduct of risk assessments and internal control evaluations; (5) managers reported that a significant number of agency activities had received no evaluation of their controls since 1982; (6) agencies have known about most problems and weaknesses for years, but the problems remain uncorrected; and (7) the Office of Management and Budget (OMB) issued to the 16 largest agencies a critique of agency reporting under FMFIA, a list of the highest-risk areas, and a list of key elements necessary to more timely identify and correct problems in response to recommendations from the Internal Control Interagency Coordination Council, but did not address a number of other important recommendations.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: An initial oversight hearing on the Department of Housing and Urban Development (HUD) was held on April 18, 1990. GAO also testified before the Subcommittee on HUD/Moderate Rehabilitation Investigation, Senate Committee on Banking, Housing and Urban Affairs (GAO/T-AFMD-90-14). Additional hearings are planned or on-going in such agencies as DOD, NASA, EPA, SBA, etc.

    Matter: Congress should, through its appropriation, authorization, and oversight committees, hold annual hearings on the actions of each of the 18 major federal agencies to evaluate its systems, to correct the material weaknesses identified, and to ensure that similar problems will not occur in the future. Agency Financial Integrity reports, plans for actions to correct material internal control and accounting system weaknesses, and financial statements provide information that congressional committees can use when planning and conducting annual oversight hearings.

  2. Status: Closed - Implemented

    Comments: The Senate Committee on Governmental Affairs is drafting legislation for introduction during this session of Congress. Hearings on this topic are scheduled for late September, 1990. The CFO Act was implemented in November 1990.

    Matter: Legislation to establish a permanent financial management structure for the government is essential. Congress should enact legislation which would, among other things: (1) establish a Chief Financial Officer of the United States whose responsibilities include developing a long-range financial management improvement plan for the government; (2) set up corresponding chief financial officers in each major agency; and (3) require the annual preparation and audit of agency financial statements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB reports two actions in place to address this recommendation. First, OMB management analysts and budget examiners are monitoring agency actions to correct reported weaknesses by incorporating this as part of their routine agency reviews. The second effort involves periodic meetings between the OMB Executive Assistant Director and agency deputy or assistant secretaries for management.

    Recommendation: To ensure the existence of a strong governmentwide Financial Integrity Act effort, the Director, OMB, should annually review the internal control and accounting system evaluation, reporting and corrective action processes in each major agency to ensure that the agencies are effectively implementing the act.

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

  2. Status: Closed - Implemented

    Comments: OMB 1990 FMFIA guidance will address setting up these committees. OMB reports that most agencies have established this through their assistant secretary for management. In the 1990 FMFIA report, OMB will ask agencies to address what they are doing in this area and how well they have done in overseeing correction of material internal control and accounting system weaknesses.

    Recommendation: One Council recommendation focused on the establishment of senior level policy committees at each agency to provide oversight of the internal control evaluation and reporting processes. OMB guidance on this point should be expanded to include, as a responsibility of these committees, oversight of agency evaluations of planned, in-progress, and completed corrective actions.

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

  3. Status: Closed - Implemented

    Comments: OMB revised Circular A-11 incorporating the need to link OMB high-risk issues to the budget. In July 1990, OMB also issued its 1990 FMFIA guidance which addresses reporting on the agency's process for validating corrective actions, training available and taken by managers, and actions taken to ensure accountability for results in identifying and correcting weaknesses.

    Recommendation: The Director, OMB, should take prompt action to ensure that agencies implement the recommendations contained in the Internal Control Interagency Coordination Council report, including: (1) linking the Financial Integrity Act internal control review and reporting process to the budget; (2) identifying, in annual reports, agency actions taken to correct weaknesses; and (3) validating that corrective actions are accomplished and are effective.

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

 

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