CFO Act Agencies' Reporting Lags

It's been 10 years since the Federal Financial Management Improvement Act was passed, and most government agencies are not meeting its requirements.

When President Bush signed the Federal Funding Accountability and Transparency Act into law last month, he promised that a newly created database would boost federal agencies' "accountability and reduce incentives for wasteful spending."

But federal agencies—the majority of which have continually failed audits—have had a hard time proving their accountability to taxpayers. Many of the 24 CFO Act agencies have consistently performed below par when it comes to being able to "produce reliable, useful, and timely financial information," according to the Government Accountability Office's annual report on the progress of the Federal Financial Management Improvement Act of 1996.

Ten years after the law's inception, 75 percent of the U.S. agencies are not complying with at least one of FFMIA's requirements, including meeting federal financial management systems and accounting standards.

The Accountability and Transparency Act's website is a searchable database that will break down all the grants, loans, awards, contracts, and purchase orders received by agencies by 2008. Linda Combs, the controller for the U.S. Office of Management and Budget, which is responsible for making sure federal agencies comply with the act, told CFO.com they are on track to meeting the act's requirements by January 2008.

As for complying with FFMIA, however, progress has been static. For fiscal year 1997, 20 agencies' systems were not in "substantial compliance" with one or more of FFMIA requirements, compared to 18 last year. Auditors for the Department of Homeland Security, which was added to the list of CFO Act agencies in 2004, reported that DHS's financial management systems did not comply with any of the requirements.

Other agencies gave various reasons for falling behind in 2005. They included implementing a new accounting system (Department of Energy) and having internal control weaknesses over financial reporting (General Services Administration).

The good news is that 19 agencies have received unqualified opinions on their 2005 audits, and that number has held pretty much steady since 2000. But other improvements have been slow in coming. For instance, the GAO noted in its report, "Improvements Under Way but Serious Financial Systems Problems Persist," that while the number of agencies that restated their financial statements is down from previous years, having seven that did so indicates "a continuing lack of improvement in the underlying agency financial statements."

The agencies' lack of accuracy and timeliness in their financial reporting is often blamed on the lack of integration of their financial systems. Auditors for 13 of the 18 agencies that did not comply with FFMIA in FY05 reported that integration was a problem. In fact, Coast Guard officials had to manually review three general ledger systems to integrate data, resulting in DHS getting a very late start on preparing a consolidated financial statement and inviting errors and inconsistencies into the statement that later had to be corrected.

Some agencies are also at risk for restatements because they don't do enough during the year to keep their books up to date. For example, auditors for the Department of Health and Human Services reported that monthly reports that attempt to reconcile its general ledger with the Treasury department's records were outdated.

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