GAO: Many federal financial books are so sloppy they can’t be audited

The Government Accountability Office says many federal agencies’ financial books are in such bad shape that they cannot be audited.

In a report released last week, the GAO said material weaknesses in accounting procedures “hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs and other related information.”

The GAO said its report on the U.S. government’s consolidated financial statements for fiscal years 2015 and 2016 “underscores that much work remains to improve federal financial management.” The agency couldn’t even express an opinion on the balance sheets because of the weak financial reporting.

GAO noted that 34 percent of the federal government’s reported assets and 18 percent of its reported net cost relate to federal entities that were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements or received a disclaimer of opinion on their statements.

The GAO called out the Department of Health and Human Services and Department of Defense, in particular, for weak internal controls.

The agency also took a shot at the Department of the Treasury and the Office of Management and Budget, noting that some of the “numerous recommendations” GAO made to those agencies in previous years to address internal control deficiencies remain unaddressed. The secretary of the Treasury and director of OMB are required to annually submit financial statements for the U.S. government, audited by the GAO, to the president and Congress.

-Johnny Kampis, Watchdog.org
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Sheila Conley: Enterprise risk management properly implemented could strengthen decision making

Sheila Conley, deputy assistant secretary and deputy chief financial officer at the Department of Health and Human Services, is one of 50 new fellows for the National Academy of Public Administration.

How will you use your NAPA fellowship to promote/influence good government?

NAPA provides a unique opportunity to engage with a wide range of fellows, who are knowledgeable and experienced in government management and policy matters.

I am looking forward to tapping into the collective expertise and wisdom of the fellows to help inform and advance the business portfolio at HHS while also participating in efforts to address pressing governmentwide issues, such as reducing improper payments and enhancing program integrity.  It is more important than ever to champion good government initiatives and best practices, many of which can be gleaned from NAPA reports and studies.

What do you think is the most important change the government needs to make in the next 5 years?

Enterprise risk management (ERM) is an emerging discipline in the federal government that, if properly implemented could strengthen agency decision-making, performance and ability to accomplish mission goals.  ERM challenges agencies to develop a risk aware culture, identify and prioritize enterprise risks and establish a risk appetite to help align agency resources with areas of greatest risk.  Successful ERM implementation requires changes in organizational culture, behaviors and attitudes about risk at every level of the agency. While it is critical for ERM to be endorsed by agency officials “setting the tone at the top,” it is also important to assess the “mood in the middle” and “buzz at the base” of the organization to develop a sustainable program that aligns with the agency’s culture.  Depending on an organization’s willingness and ability to enhance ERM, it could take five years or more to achieve the many benefits of a successful ERM program. 

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Why agencies break the law on improper payments

Despite an attempted crackdown by the Obama administration, agencies are increasingly likely to make payment mistakes. The error rate rose from 3.53 percent in fiscal 2013 to 4.02 percent in fiscal 2014. In other words, the government misspent about $10 billion more last year than the year earlier.

That we knew, thanks to a Government Accountability Office report issued a few months back. But recent inspector general reports round out the picture by showing where agencies go wrong.

Of the 24 CFO Act agencies — those required to have audited financial statements —about half failed to comply with the law on improper payments, according to a preliminary analysis of the IG reports by the accounting firm Grant Thornton. The low scorers include the agencies that misspent the most money: the departments of Health and Human Services, Treasury, Agriculture and the Social Security Administration.

The overall picture seems, at first glance, worse than in past years, when inspectors general evaluated agencies on a multilevel scale that ranged from "compliant" to "noncompliant." While agencies have made strides in some of their programs, complying with the improper payments law is now pass-fail, thanks to guidance the White House issued in October.

"They're trying to say, ‘No more wiggle room. You're either compliant or not compliant,'" said Grant Thornton Principal Robert Shea.

-Emily Kopp, FederalNewsRadio.com
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OMB to Alter Guidance for Reducing Improper Payments

Inspectors general are the “best friends” of program managers and the White House budget office when it comes to catching fraud and reducing agency improper payments, the deputy U.S. controller said on Wednesday.

Mark Reger, now in his third month as the No. 2 at the Office of Federal Financial Management, said his team is reworking  Circular A-123 guidance on controlling for financial integrity “to make it less prescriptive and to rely on the people on the ground,” particularly inspectors general.

Reger, a former Maryland State Treasury official, noted that the rate of bad payments has dropped steadily over the past four years, thanks in part to Congress’s enactment of the 2012 Credit Card Fraud Prevention Act and the 2012 Improper Payments Elimination and Recovery Act. “The most important tool is the education of agency enforcers in the field,” he said, praising the watchdogs for gathering better data, working together and sharing information. “I don’t know a single inspector general who isn’t thrilled to find additional money.”

The increasing use of data analytics has allowed progress in such areas as federal employee misuse of credit orthat it’s not okay to steal from federal government, it’s not sexy,” Reger said. purchasing cards, the deputy controller said. “The data is now generated back to the agencies every day,” he said. “Employees found to have committed fraud have had their cards cancelled, or been fired, or disciplined in some fashion.”

Coming changes to the financial controls circular will include requiring fewer reports and more-detailed categories of fraud, or “bucketing,” to distinguish, for example, between an unmerited payment and a claim lacking proper documentation, he said.

Reger urged IGs, program managers and vendors to report fraud to the Government Accountability Office’s fraud line at fraudnet@gao.net, and to peruse their own Medicare bills in search of bad charges.  “Please reinforce that it’s not okay to steal from federal government, it’s not sexy,” Reger said.

- Charles S. Clark, GovExec.com
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GAO released the revised Green Book, standards to help agencies achieve goals and safeguard resources

Internal control helps an entity run its operations efficiently and effectively, report reliable information about its operations, and comply with applicable laws and regulations. The Standards for Internal Control in the Federal Government, known as the "Green Book," sets the standards for an effective internal control system for federal agencies.

2014 Green Book Overview 

2014 Green Book

Government made $100B in improper payments

WASHINGTON (AP) -- By its own estimate, the government made about $100 billion in payments last year to people who may not have been entitled to receive them -- tax credits to families that didn't qualify, unemployment benefits to people who had jobs and medical payments for treatments that might not have been necessary.

Congressional investigators say the figure could be even higher.

The Obama administration has reduced the amount of improper payments since they peaked in 2010. Still, estimates from federal agencies show that some are wasting big money at a time when Congress is squeezing agency budgets and looking to save more.

Some improper payments are the result of fraud, while others are unintentional, caused by clerical errors or mistakes in awarding benefits without proper verification.

In 2013, federal agencies made $97 billion in overpayments, according to agency estimates. Underpayments totaled $9 billion.

The amount of improper payments has steadily dropped since 2010, when it peaked at $121 billion.

The Obama administration has stepped up efforts to measure improper payments, identify the cause and develop plans to reduce them, said Beth Cobert, deputy director of the White House budget office. 

Agencies recovered more than $22 billion in overpayments last year.

-Stephen Ohlemacher, Associated Press/FederalNewsRadio.com
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Outdated DHS Financial Systems May Be Inhibiting Internal IT Controls, OIG Audit Says

In recent years, said a new Department of Homeland Security (DHS) Office of Inspector General (OIG) IT management report for the Fiscal Year 2013 DHS financial statement audit, “DHS’s financial system functionality may be inhibiting the agency’s ability to implement and maintain internal controls, notably IT applications controls supporting financial data processing and reporting at some components.”

“At most components,” OIG report, “the financial systems have not been substantially updated since being inherited from legacy agencies several years ago. Therefore, in FY 2013, we continued to evaluate and consider the impact of financial system functionality over financial reporting.”

In FY 2013, a total of 103 findings were issued, of which approximately 69 percent are repeated from last year.

According to the audit, approximately 35 percent of repeat findings were for IT deficiencies that management represented were corrected during FY 2013. The new findings in FY 2013 resulted both from additional IT systems and business processes within the scope of the audit this year and from control deficiencies identified in areas which were effective in previous years, and were noted at all DHS components.

Customs and Border Protection (CBP) and the Federal Law Enforcement Training Center (FLETC) had the greatest number of new findings.

OIG reported that “many key DHS financial systems are not compliant with the financial management systems requirements of the Federal Financial Management Improvement Act of 1996 and Office of Management and Budget (OMB) Circular Number A-127, Financial Management Systems, revised. DHS financial system functionality limitations add substantially to the department’s challenges of addressing systemic internal control weaknesses and limit the department’s ability to leverage IT systems to effectively and efficiently process and report financial data.”

With respect to DHS and its components’ financial systems’ IT controls, the audit “noted certain matters in the areas of security management, access controls, configuration management, segregation of duties and contingency planning.”

During the audit, “certain matters involving financial reporting internal controls (comments not related to IT) and other operational matters, including certain deficiencies in internal control” were discovered that are considered “to be significant deficiencies and material weaknesses,” and were communicated in writing to management and those charged with governance in KPMG’s Independent Auditors’ Report and in a separate letter to the Office of Inspector General and the DHS Chief Financial Officer.

-Anthony Kimery, HStoday.us
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Federal watchdog says SEC security issues put financial data at risk

A congressional watchdog has tasked the U.S. Securities and Exchange Commission (SEC) with addressing a number of security weaknesses impacting its system.

On Thursday, the U.S. Government Accountability Office (GAO) released a report (PDF) detailing the issues, which included SEC not encrypting sensitive data, properly identifying and authenticating users, or securely configuring a vital financial system, leaving it vulnerable to attack.

According to the 25-page report, “the information security weaknesses existed, in part, because SEC did not effectively oversee and manage the implementation of information security controls during the migration of this key financial system to a new location."

The watchdog said that SEC did not adequately oversee a contractor it hired to migrate its systems to a different data center last June.

As a result of SEC's need to improve security controls, GAO determined that the agency – which regulates the securities market, including exchanges, brokers, dealers and investment firms – had a “significant deficiency in internal control over financial reporting for fiscal year 2013.”

-Danielle Walker, SCmagazine.com
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From 500 to 70, OMB reduces number of financial system requirements

The Office of Management and Budget actually canceled a financial management circular earlier this month.

Circular A-127 no longer governs agency financial management systems. Instead, OMB rolled a small set of these old requirements into the new Appendix D of Circular A- 123 back in September.

OMB said Appendix D went into effect Oct. 1 and therefore rescinded all previously issued versions of Circular A-127 from Dec. 19, 1984; July 23, 1993; June 10, 1999; Dec. 1, 2004; and Jan. 9, 2009.

Norman Dong, the acting controller at OMB, said the goal of the rescission of A- 127 and the new Appendix D is to improve the quality, utility and the reliability of federal financial information.

The new guidance features only 70 requirements that OMB hopes will drive agencies toward outcomes such as reporting timely financial data or eliminating waste, fraud and abuse.

Dong said Appendix D now focuses on ways agencies can gauge how well they are in meeting the requirements of the Federal Financial Management Improvement Act (FFMIA), such as the number of and nature of material weaknesses and audit opinion from the inspector general or third party analysis. Formerly A-127, and now Appendix D, help agencies implement FFMIA.

Another major change with Appendix D is the focus on shared services. OMB has strongly encouraged agencies to move to federal shared service providers for financial management when appropriate, but some of the requirements under A-123 made it more difficult.

Dong said one example of this change in approach to financial management happened when a service provider and customer agency initially had discussions about hosting the system and identified more than 700 gaps between how the customer and provider were doing business. But, he said, when they shifted the conversation away from how they were doing business and focused on what needs to be achieved, the number of differences dropped dramatically.

OMB eventually will fold Appendix D into the rewrite of Circular A-123, governing the internal controls of agency financial management.

Dong said the goal is to rationalize and harmonize OMB's guidance on federal financial management. He said it's important to make sure the requirements are reasonable and rationale.

OMB announced in February it would lead an effort to do the first major grants policy rewrite in years.

Dong said OMB will release the A-123 update in the coming months. He said OMB is conferring with agencies on a number of different aspects of the rewrite, including the improper payments requirements.

In addition to the A-123 update, OMB released a new bulletin on Oct. 21, giving agencies an updated set of minimum standards for their financial audits.

OMB made 26 changes to the 67-page document around areas such as reporting, written representation from management and the scope of the audit.

-Jason Miller, FederalNewsRadio.com
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OMB updates financial reporting rules

What: Appendix D to Circular No. A-123, Compliance with the Federal Financial Management Improvement Act of 1996

Why: Federal agencies are getting new flexibility in modernizing their financial management systems, per a Sept. 20 memo from Sylvia Burwell, director of the Office of Management and Budget.

The new framework changes the way agencies comply with the Federal Financial Management Improvement Act (FFMIA), to eliminate some restrictions on technology products and phase out a testing and certification program for the deployment of financial management software, while paving the way for the use of shared services across agencies. The OMB has also established a set of common goals for financial management across all federal agencies. The memo also charges the Treasury Department with developing requirements for federal financial management systems.

-Adam Mazmanian, FCW.com
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OMB Circular A-123, Appendix D Becomes Effective October 1, 2013

On September 20th, the interim final version of OMB Circular A-123, Appendix D, Compliance with the Federal Financial Management Improvement Act of 1996 (M-12-23) was released.  Appendix D, effective October 1, 2013, provides additional guidance and defines new requirements for Financial Management Systems determining compliance with the FFMIA.  Appendix D rescinds all previously issued versions of Circular A-127, Financial Management Systems.

Please see http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-23.pdf for OMB Circular A-123, Appendix D.

OMB gives agencies more control over financial management systems

Agencies are gaining more control over how to upgrade their financial management systems.

Instead of a strict set of rules around the technology requirements for federal systems, the Office of Management and Budget will rescind Circular A-127 that governs financial systems, and, through this memo, move and simplify those regulations into Appendix D of Circular A-123.

OMB Director Sylvia Burwell wrote in a memo to agency leaders that said, "The goal of this Appendix is to transform our compliance framework so that it will contribute to efforts to reduce the cost, risk, and complexity of financial system modernizations. The objective of this approach will be to provide additional flexibility for federal agencies to initiate smaller-scale financial modernizations as long as relevant financial management outcomes (e.g., clean audits, proper controls, timely reporting) are maintained."

In a nutshell, implementing the Federal Financial Management Improvement Act (FFMIA) has become arduous and ended up forcing agencies into costly financial management upgrades.

So now Appendix D is more streamlined. OMB reduced the number of requirements from more than 500 to about 60 that focus on outcome or output.

OMB began to dismantle FFMIA regulations over the last several years. The administration closed down the Federal Systems Integration Office (FSIO) in March 2011 and moved a lot of the oversight and standards work to the Treasury Department's Office of Financial Innovation and Transformation (OFIT).

-Jason Miller, FederalNewsRadio.com
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OMB following a familiar path as it shapes new financial internal controls

The Office of Federal Financial Management is taking a page out of the cybersecurity reform book in how it's changing how agencies oversee spending.

OFFM is updating its Circular A-123 guidance to be more like the future vision of cybersecurity — based on risk and data, and done more than every three years.

Mike Wetklow, the chief of the accountability performance branch at OFFM in the Office of Management and Budget, said there are several guiding principles going into the revision, including integrating an internal controls framework, reducing the compliance burdens and innovation through data analysis.

"Many of these principles we are putting in practice, we're going to have examples of charge cards, improper payments and data analytics," said Wetklow during a panel discussion at the Association of Government Accountant's Internal Control and Fraud Prevention Training event Tuesday in Washington. "We have a lot of things we are trying to do differently like, for example, with Hurricane Sandy last year. There was a memo earlier in the year about internal control plans. A lot of our discussions were we didn't want to make this a new Recovery Act or have this big compliance exercise right in the middle of disaster response, but to really use the internal controls as a risk management tool. We didn't ask agencies to document their control environment, the risk assessment, the control activities, the full gauntlet of all those things. We asked them to simply do a thoughtful analysis of their risks that came about from the extra funding that went into their programs, and just work with OMB on that."

Federal financial management and cybersecurity policy face similar challenges. Both need to keep up with the changing environment and expectations, and move from a static to a dynamic approach.

Like FISMA, A-123 turned into a static process.

A-123 is a 30-plus-year-old policy from OMB regarding how agencies, and specifically CFOs and their budget staffs, handle the oversight of money, otherwise known as internal controls. Internal controls ensure agencies meet policy and legislative requirements for financial reporting and the effectiveness and efficiency of programs.

OMB last revised A-123 in 2004 after Congress passed the Sarbanes-Oxley bill.

Experts say this latest set of changes is part of the pendulum that seems to swing every decade or so between more or less reporting requirements.

He said one of the biggest changes is what is being added to A-123 to meet the intent and spirit of Congress when it wrote the Federal Financial Management and Improvement Act (FFMIA).

"In the near term, and this will be literally in a couple of weeks, we plan to rescind OMB Circular A-127 and replace it with a new Appendix D to A-123," Wetklow said. "And if you ask yourself, why A-123? When you read the committee report [to FFMIA], it talks a little about financial systems. It talks more about internal controls, business processes, and visibility into government operations. Our hope in what we are doing is we are going to reduce compliance burdens by getting rid of all of these complicated checklists that only serve to drive system's costs and risks, and integrate our processes with the already existing things in A-123."

A-127 addresses financial management system requirements. OMB slowly has been moving away from strict financial management system requirements, and focusing more on standards and outcomes over the last decade.

He said A-123 also will need to be integrated with several other initiatives including new credit card abuse guidance OMB issued last week, improper payment laws that includes the Do Not Pay list and other changes to financial oversight that have come over the past 10 years.

-Jason Miller, FederalNewsRadio.com
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Timeline: The Evolution of Financial Management in the Federal Government

(This interactive timeline is part of Federal News Radio's special report, Rise of the Money People.)

The roots of today's federal financial systems oversight can be traced back to the Accounting and Auditing Act of 1950, which authorized the head of each federal agency to establish internal controls over its assets.

The act also tasked the Government Accountability Office with drawing up accounting standards for agencies and, through audits, ensuring that agency internal controls met those standards.

Over the last three decades, Congress has expanded the scope of financial oversight at agencies, and, with the help of new technology, provided for greater transparency in agencies' fiscal reporting.

This timeline provides an overview of the initiatives introduced by the White House and legislation enacted by Congress to establish greater oversight of government spending.

-Michael O'Connell, FederalNewsRadio.com
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Shared Services Strategy from OMB and Treasury Previewed at AGA’s Third Annual Federal Financial Systems Summit

Over 400 government financial professionals gathered at AGA’s Federal Financial Systems Summit in Washington last week to learn about and to discuss the near-term and future prospects of Federal financial management and systems in a budget constrained environment. The summit provided for an open dialogue between federal agency stakeholders, private-sector sponsors and key policymakers from the Office of Management and Budget (OMB) and the U.S. Department of the Treasury (Treasury) through town hall-style sessions where participants were encouraged to engage each other and openly express their thoughts, ideas and concerns.

Danny Werfel, Controller, OMB and Richard Gregg, Fiscal Assistant Secretary, Treasury, set the tone at the event by declaring a renewed commitment to drive federal agencies seeking to modernize their financial management systems to utilize shared services, where possible. In alignment with OMB’s Office of Electronic Government “Shared First” strategy, OMB and Treasury will be issuing new guidance very soon, and coordinating with agencies to leverage shared services for their core financial systems modernization initiatives.


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GAO: the Army payroll system is a mess

If you’ve been on Army active duty during the past couple of years, you might want to take another look at your pay stubs. The Government Accountability Office today released a report (GAO-13-28) that detailed major problems with the Army’s $47 billion annual military payroll accounts.

The agency found that the Army “is unable to track and collect data on pay errors for active duty soldiers that occur due to over payments, under payments, data entry errors and fraud,” according to a bipartisan statement issued jointly by Sens. Tom Carper, D-Del., Tom Coburn, R-Okla., Scott Brown, R-Mass., Claire McCaskill, D-Mo., and Reps. Darrell Issa, R-Calif., Edolphus Towns, D-N.Y., and Todd Platts, R-Pa.

GAO found a lot of errors, and said many “went undetected for lengthy periods of time, including some that were not detected for up to 2 years or until the soldier left the Army.”

-Bill McMichael, Delaware Online
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Werfel: Gov't avoids $47B in overpayments

The federal government avoided making $47 billion in overpayments over the last three years. In addition, the governmentwide error rate dropped from a high 5.4 percent in Fiscal Year 2009 to 4.3 percent in FY2012.

Adding in the number of improper payments avoided during the same three-year period by the Department of Defense in commercial contracts, the overpayment savings rise to $70 billion and the governmentwide error rate sinks to 3.7 percent. Danny Werfel, the controller of the Office of Management and Budget, announced these figures Wednesday in a blog post on the agency's blog, OMBlog.

Werfel wrote that error rates dropped in major programs across the government, including Medicare Fee-for- Service, Medicaid, the Earned Income Tax Credit and SNAP (Food Stamps). He added the Department of Labor is also working with states to reduce Unemployment Insurance improper payments.

- Michael O'Connell, FederalNewsRadio.com
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Today's GAO Publication

Management Report: Opportunities for Improvement in the Bureau of Consumer Financial Protection's Internal Controls and Accounting Procedures.
GAO-12-528R, May 21.

http://www.gao.gov/products/GAO-12-528R

Today's GAO Publication

Management Report: Opportunities for Improvement in the Federal Housing Finance Agency's Internal Controls.
GAO-12-499R, May 16.

http://www.gao.gov/products/GAO-12-499R

Senators probe GSA financial controls after conference scandal

Leaders of the Senate Homeland Security and Governmental Affairs Committee Thursday asked the General Services Administration to provide details about its financial management and internal controls aimed at preventing waste, fraud and abuse, in the wake of a scathing inspector general report about GSA's 2010 Western Regions Conference (WRC) held near Las Vegas.


Chairman Joe Lieberman (I-Conn.) and Ranking Member Susan Collins (R-Maine), whose committee is tasked with overseeing agency efficiency and effectiveness, requested the information in a nine-page letter, released to the public Monday and filled with questions about conference spending, travel, awards and contracting. They addressed the letter to Acting GSA Administrator Dan Tangherlini.

-Ruben Gomez, FederalNewsRadio.com
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