Financial Management: FFMIA Implementation Critical for Federal Accountability
GAO-02-29
Published: Oct 01, 2001. Publicly Released: Oct 01, 2001.
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Highlights
Effective management of the government's day-to-day operations has been hampered by a lack of necessary data. The Chief Financial Officers (CFO) Act of 1990 calls for the modernization of federal financial management systems, including the systematic measurement of performance; the development of cost information; and the integration of program, budget, and financial information. The Federal Financial Management Improvement Act of 1996 (FFMIA) encourages agencies to have systems that generate timely, accurate, and useful information with which to make informed decisions and to ensure accountability on an ongoing basis. Auditors for 19 of the 24 CFO Act agencies reported that their agencies' financial management systems did not comply substantially with FFMIA requirements, compared to 21 agencies reported as not being substantially compliant for 1999. The auditors for five CFO Act agencies reported no instances in which the agencies' systems did not substantially comply with FFMIA. These auditors, however, did not definitively state whether the agencies' financial management systems substantially complied with FFMIA. FFMIA requires agencies to prepare remediation plans to overcome financial management systems problems. These plans have improved over the fiscal year 1998 plans; however, further enhancements are needed.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Management and Budget | The Director of the Office of Management and Budget (OMB) should revise OMB's current Federal Financial Management Improvement Act (FFMIA) audit guidance to require agency auditors to provide a statement of positive assurance when reporting an agency's systems to be in substantial compliance with FFMIA, which entails a more thorough examination of agencies' systems and thus, amplifies financial managers' awareness of the importance of an effective and efficient financial management system. |
Closed – Not Implemented
OMB continues to disagree with GAO on this recommendation. OMB's position is that many of the ongoing assessments required under the revised Circular No. A-123 mirror the types of assessments that would occur in establishing a statement of positive assurance under FFMIA. As a result, OMB believes that requiring a statement of positive assurance would not be cost beneficial. As of December 2012, based on current guidance contained in OMB Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, OMB has not taken steps to revise audit guidance and require agency auditors to provide a statement of positive assurance on agencies' substantial compliance with FFMIA. In addition, OMB is currently updating its FFMIA compliance model and has no plans to require positive assurance. Therefore, this outstanding recommendation is being closed as not implemented.
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| Office of Management and Budget | The Director of OMB should revise OMB's current FFMIA audit guidance to develop additional guidance, in accordance with the Financial Audit Manual, to specify the expected procedures that auditors should perform when assessing FFMIA compliance, which clearly outlines (1) the minimum scope of work and (2) the procedures for auditors to perform in determining whether management has reliable, timely, and useful financial information for managing day-to-day operations. |
Closed – Implemented
While agreeing with the intent, OMB has not taken any action to implement this recommendation due to its plans to change the current approach for how federal systems are developed and implemented. However, GAO has resolved this issue by working with the President's Council on Integrity and Efficiency (PCIE) to develop a new section addressing FFMIA assessments for the joint GAO/PCIE Financial Audit Manual (FAM). This new section, released in April 2003, includes detailed audit steps for testing systems' compliance with FFMIA, and if appropriately implemented, should provide a sufficient basis to conclude whether agency systems substantially comply with FFMIA.
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| Office of Management and Budget | OMB should work with the Chief Financial Officers (CFO), the Inspectors General (IG), and GAO to explore further clarification of the definition of "substantial compliance" to assist auditors and agency management to consistently apply and evaluate an agency's systems' FFMIA compliance. |
Closed – Implemented
In May 2008, OMB prepared a draft of the revised Circular No. A-127, Financial Management Systems, and formed a working group of CFO, IG, and GAO officials to help update the guidance and identify additional testing procedures. On January 9, 2009, OMB issued the revised Circular No. A-127, and added a new section on FFMIA compliance with the intent of clarifying the definition of substantial compliance and providing a risk-based approach for determining compliance.
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| Office of Management and Budget | OMB should work with the CFOs, the IGs, and GAO to reiterate that the indicators of compliance in the January 4, 2001, FFMIA implementation guidance are not meant to be all inclusive. |
Closed – Implemented
While agreeing with the intent, OMB has not taken any action as yet to implement the recommendation, due to its plans to change the current approach for how federal systems are developed and implemented. However, GAO has resolved this issue by working with representatives from the President's Council on Integrity and Efficiency (PCIE) to develop a new section addressing FFMIA assessments for the joint GAO/PCIE Financial Audit Manual (FAM). This new section, released in April 2003, includes a statement that the indicators in OMB's FFMIA implementation guidance are characterized as examples and are not all-inclusive. Appropriately implemented, this statement in the FAM guidance should help in providing a sufficient basis for FFMIA assessments.
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| Office of Management and Budget | Because of the importance of cost accounting to managers for measuring the results of program performance, OMB should request that as part of the FFMIA review, auditors pay special attention to agencies' ability to meet the requirements of the Managerial Cost Accounting Concepts and Standards and to report as to whether agencies' systems comply with the standards. |
Closed – Implemented
While agreeing with the intent, OMB has not taken any action to implement this recommendation due to its plans to change the current approach as to how federal systems are developed and implemented. However, GAO has resolved this issue by working with representatives from the President's Council on Integrity and Efficiency (PCIE) to develop a new section addressing FFMIA assessments for the joint GAO/PCIE Financial Audit Manual. This new section, released in April 2003, includes procedures to assess (1) the adequacy of reports used to manage day-to-day operations and (2) whether agency cost accounting systems comply with FASAB's managerial cost standard.
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AccountabilityFinancial management systemsInternal controlsStrategic planningFinancial managementFinancial statementsAccounting standardsChief financial officersFinancial systemsFinancial information