Financial Management:

Status of Financial Management Issues at the Small Business Administration

AIMD-00-263: Published: Aug 29, 2000. Publicly Released: Oct 17, 2000.

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Pursuant to a congressional request, GAO reviewed the status of the Small Business Administration's (SBA) financial management issues, focusing on: (1) useful information Congress can obtain from SBA's fiscal year (FY) 1999 financial statements; (2) the major internal control deficiencies in SBA's FY 1999 financial statement audit and the major causes and implications; and (3) ramifications of SBA's lack of substantial compliance with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA).

GAO noted that: (1) SBA's unqualified audit opinion on its FY 1999 financial statements means that the information contained in those statements is fairly stated and therefore can be used as a tool for congressional oversight of the agency; (2) among other things, properly prepared and audited financial statements that include information on the status of budgetary resources, obligations, and outlays help provide some assurance of the reliability of numbers reported in the President's Budget as actual amounts; (3) for a credit agency such as SBA, the audit of financial statements is essential to assessing the reliability of the estimated cost of credit programs and can provide additional information that can be used by decisionmakers to supplement credit cost information included in the budget; (4) despite receiving an unqualified opinion, SBA faces major challenges before it can fully achieve financial accountability; (5) there were two material internal control weaknesses identified in SBA's FY 1999 financial statement audit: (a) SBA's financial reporting process did not ensure that its financial statements would be free of material misstatements; and (b) general computer control weaknesses in SBA's information systems did not ensure that unauthorized activities, such as the modification of data or software, would be prevented or detected; (6) SBA's lack of an integrated general ledger for recording its transactions during the year contributed to: (a) the deficiencies in SBA's financial reporting process; (b) its reliance on multiple, nonintegrated spreadsheets as well as complex and error-prone manual processes for recording financial data; and (c) the lack of comprehensive plans and procedures for preparing its financial statements; (7) the deficiencies in SBA's financial reporting process, coupled with its general computer control deficiencies, resulted in SBA's lack of substantial compliance with FFMIA; (8) FFMIA is a measure of an agency's ability to incorporate into its financial management systems the accounting standards and reporting objectives established for the federal government, so that all assets, liabilities, revenues, expenses, and the full costs of programs and activities can be consistently and accurately recorded, monitored, and uniformly reported; (9) substantial noncompliance with FFMIA is one of the factors that indicate that agency financial management systems do not routinely provide reliable, useful, and timely financial information to manage on a day-to-day basis; and (10) SBA has developed a remediation plan which the Office of Management and Budget has approved.

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