This is the accessible text file for GAO report number GAO-08-1018 
entitled 'Financial Management: Persistent Financial Management Systems 
Issues Remain for Many CFO Act Agencies' which was released on October 
3, 2008. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

September 2008: 

Financial Management: 

Persistent Financial Management Systems Issues Remain for Many CFO Act 
Agencies: 

FFMIA Fiscal Year 2007 Results: 

GAO-08-1018: 

GAO Highlights: 

Highlights of GAO-08-1018, a report to congressional committees. 

Why GAO Did This Study: 

The ability to produce the financial information needed to efficiently 
and effectively manage the day-to-day operations of the federal 
government and provide accountability to taxpayers continues to be a 
challenge for many federal agencies. To help address this challenge, 
the Federal Financial Management Improvement Act of 1996 (FFMIA) 
requires the 24 Chief Financial Officers (CFO) Act agencies to 
implement and maintain financial management systems that comply 
substantially with (1) federal financial management systems 
requirements, (2) federal accounting standards, and (3) the U.S. 
Government Standard General Ledger (SGL). FFMIA also requires GAO to 
report annually on the implementation of the act. 

This report, primarily based on GAO and inspectors general reports and 
agencies’ performance and accountability reports, discusses (1) the 
reported status of agencies’ systems compliance with FFMIA and overall 
federal financial management improvement efforts and (2) the remaining 
challenges to achieving the goals of FFMIA. 

What GAO Found: 

For fiscal year 2007, auditors reported 13 of 24 CFO Act agencies’ 
financial management systems were not in substantial compliance with 
FFMIA requirements. For these 13 agencies, auditors reported a number 
of problems, as shown below, that illustrate how agency financial 
management systems—including processes, procedures, and controls—are 
not providing reliable, useful, and timely information to help manage 
agency programs more effectively. As discussed in prior FFMIA reports, 
GAO remains concerned that the criteria for assessing substantial 
compliance with FFMIA are not well defined or consistently implemented 
across agencies. In addition, the majority of participants at a 
Comptroller General’s forum on improving federal financial management 
systems said there is little agreement on the definition of 
“substantial compliance.” To address GAO’s prior recommendation, OMB is 
in the process of revising its guidance, and GAO has reemphasized its 
concerns with the need for an appropriate definition of substantial 
compliance that focuses on financial management systems’ capabilities 
beyond financial statement preparation. 

Figure: 

[See PDF for image] 

Source: GAO analysis based on independent auditors' financial statement 
audit reports prepared by agency inspectors general and contract 
auditors for fiscal year 2007. 

[End of figure] 

Agencies’ efforts to implement new systems far too often result in 
systems that do not meet cost, schedule, and performance goals. Recent 
modernization efforts by some agencies have been hampered by not 
following disciplined processes. To help avoid implementation problems, 
OMB continues to make progress on its financial management line of 
business initiative, which promotes business-driven, common solutions 
for agencies to enhance federal financial management, but additional 
efforts are needed. 

What GAO Recommends: 

Although no new recommendations are being made in this report, GAO 
reaffirms its prior recommendation that the Office of Management and 
Budget (OMB) revise its guidance to clarify the meaning of “substantial 
compliance” to provide consistency when assessing FFMIA compliance. GAO 
will continue to work with OMB on this issue. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1018]. For more 
information, contact Kay L. Daly at (202) 512-9095 or dalykl@gao.gov 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Continued Emphasis Needed on Federal Financial Management and FFMIA 
Compliance: 

Challenges Remain to Achieve Goals of FFMIA: 

Conclusion: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Requirements and Standards Supporting Federal Financial 
Management: 

Federal Financial Management Systems Requirements: 

Federal Accounting Standards: 

U.S. Government Standard General Ledger (SGL): 

Appendix III: Publications in the Federal Financial Management Systems 
Requirements Series: 

Appendix IV: Statements of Federal Financial Accounting Concepts, 
Standards, Interpretations, and Technical Bulletins: 

Appendix V: Accounting and Auditing Policy Committee Technical 
Releases: 

Appendix VI: Checklists for Reviewing Systems under the Federal 
Financial Management Improvement Act: 

Appendix VII: Comments from the Office of Management and Budget: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Table: 

Table 1: Six Problem Areas and the Potential Effect on Agency Financial 
Management: 

Figures: 

Figure 1: Comparison of 2007 Financial Statement Audit Results to FFMIA 
Assessments: 

Figure 2: Auditors' FFMIA Assessments for Fiscal Years 1998 through 
2007: 

Figure 3: Number of Reported Problems for 13 Agencies with FFMIA 
Noncompliant Systems for Fiscal Year 2007: 

Figure 4: Agency Systems Architecture: 

Abbreviations: 

AAPC: Accounting and Auditing Policy Committee: 

CFO: Chief Financial Officer: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

FAM: Financial Audit Manual: 

FASAB: Federal Accounting Standards Advisory Board: 

FFMIA: Federal Financial Management Improvement Act: 

FFMSR: federal financial management systems requirements: 

FISMA: Federal Information Security Management Act: 

FMFIA: Federal Managers' Financial Integrity Act: 

FMLOB: financial management line of business: 

FSIO: Financial Systems Integration Office: 

HHS: Department of Health and Human Services: 

IG: inspector general: 

IRS: Internal Revenue Service: 

JFMIP: Joint Financial Management Improvement Program: 

OFFM: Office of Federal Financial Management: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

PCIE: President's Council on Integrity and Efficiency: 

SBA: Small Business Administration: 

SFFAC: Statements of Federal Financial Accounting Concepts: 

SFFAS: Statements of Federal Financial Accounting Standards: 

SGL: U.S. Government Standard General Ledger: 

UFMS: Unified Financial Management System: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 30, 2008: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Henry A. Waxman: 
Chairman: 
The Honorable Tom Davis: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

Reliable, useful, and timely financial data are needed to efficiently 
and effectively manage the day-to-day operations of the federal 
government and ultimately provide accountability to taxpayers and the 
Congress. The value of reliable financial information for prudent and 
forward-thinking decision making cannot be overstated, especially given 
our nation's current fiscal environment. As we have reported for a 
number of years,[Footnote 1] the federal government faces large and 
growing structural deficits primarily because of known demographic 
trends and rising health care costs. These long-term challenges have 
profound implications for our future economic growth, standard of 
living, and national security. Significant resources will be needed to 
address many of these areas, and difficult choices and trade-offs are 
unavoidable. It is within this scenario that the implications of 
ongoing weaknesses in agencies' ability to produce reliable and timely 
financial information become clear. Accurate data on which to base 
crucial program and resource decisions are critical to meeting the 
challenges our nation faces in the 21st century. 

To address these long-standing weaknesses, the Congress mandated 
financial management systems reform within the federal government by 
enacting the Federal Financial Management Improvement Act of 1996 
(FFMIA).[Footnote 2] FFMIA requires the departments and agencies 
covered by the Chief Financial Officers (CFO) Act of 1990[Footnote 3] 
to implement and maintain financial management systems,[Footnote 4] 
that comply substantially with (1) federal financial management systems 
requirements, (2) applicable federal accounting standards, and (3) the 
U.S. Government Standard General Ledger (SGL) at the transaction level. 
FFMIA builds on the foundation laid by the CFO Act, which has the goal 
of modern financial management systems that enable the systematic 
measurement of performance; the development of cost information; and 
the integration of program, budget, and financial information for 
management reporting. FFMIA also requires auditors to state in their 
audit reports whether the agencies' financial management systems comply 
with the act's requirements. In addition, we are required to report 
annually on the implementation status of the act. (See the Related GAO 
Products list at the end of this report for our prior reports and 
testimonies under this mandate.) 

This report discusses (1) the reported status of agencies' systems 
compliance with FFMIA and overall federal financial management 
improvement efforts and (2) the remaining challenges to achieving the 
goals of FFMIA. This report incorporates historical information from 
our prior FFMIA reports, as well as financial management systems issues 
from other GAO reports, agency inspectors general (IG) reports, and 
agencies' performance and accountability reports for fiscal year 2007. 
We analyzed and compiled data from these reports; conducted interviews 
of agency officials, IG officials, and agency auditors; and obtained 
selected documentation. To assess data reliability for the purposes of 
this report, we performed procedures to assure ourselves of the 
independence and qualifications of the auditors for the 24 CFO Act 
agencies. We did not re-perform the auditors' work as it was beyond the 
scope of this engagement. We analyzed applicable results from a 
Comptroller General's forum[Footnote 5] held in December 2007 on 
improving the federal government's financial management systems. We 
also met with Office of Management and Budget (OMB) officials to 
discuss their current efforts to improve federal financial management 
and address our prior recommendations related to FFMIA. 

We conducted this performance audit from December 2007 to September 
2008 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. Details on 
our scope and methodology are included in appendix I. 

Results in Brief: 

The auditors' FFMIA assessments for the 24 CFO Act agencies for fiscal 
year 2007 illustrate that many agencies still do not have effective 
financial management systems, including processes, procedures, and 
controls in place that can routinely produce reliable, useful, and 
timely financial information that federal managers can use for day-to- 
day decision-making purposes. The primary goal of FFMIA is for agencies 
to improve financial management systems so that financial information 
from these systems can be used to help manage agency programs more 
effectively and enhance the ability to prepare auditable financial 
statements. For fiscal year 2007, agency auditors reported that 13 of 
the 24 CFO Act agencies' systems did not substantially comply with one 
or more of the three FFMIA requirements. This compares with 17 agencies 
reported as not substantially compliant with one or more of these FFMIA 
requirements for fiscal year 2006. FFMIA assessments for six CFO Act 
agencies changed, with auditors reporting one agency's financial 
management systems as no longer in substantial compliance, and the 
other five as no longer substantially noncompliant with FFMIA 
requirements for fiscal year 2007.[Footnote 6] While auditors reported 
that improvements at those five agencies were largely because of agency-
implemented corrective actions, in some cases, varying interpretations 
of OMB's FFMIA guidance on the definition of "substantial compliance" 
may have also played a role. In addition, the majority of participants 
at a recent Comptroller General's forum on improving federal financial 
management systems said there is little agreement on the definition of 
substantial compliance. Furthermore, auditors for the Department of 
Justice told us that the reduction of certain material 
weaknesses[Footnote 7] to significant deficiencies[Footnote 8] was a 
factor for the change in their FFMIA assessment of substantial 
compliance. We are concerned that agencies and auditors are 
interpreting OMB's FFMIA guidance to mean that if an agency has no 
material weaknesses, its systems are substantially compliant with the 
three FFMIA requirements. Although current FFMIA guidance includes 
examples of compliance indicators, we have found, in the past, that 
several agency auditors used the indicators as a checklist for 
determining an agency's systems compliance. In our view, a checklist 
approach is not appropriate for assessing whether agency financial 
management systems--including processes, procedures, and controls--are 
substantially compliant with FFMIA and does not meet the expectations 
of the Congress[Footnote 9] in requiring auditor reporting under FFMIA. 
OMB recently provided a draft of its revised Circular No. A-127, 
Financial Management Systems, to the CFO Council to review and provide 
comments. We provided comments on the draft that highlighted and 
reemphasized some of our previous concerns expressed in our prior 
reports and recommendations to OMB on improving its FFMIA audit 
guidance and clarifying the definition of "substantial 
compliance."[Footnote 10] 

The modernization of federal financial management systems has been a 
long-standing challenge at many federal agencies. For agencies to 
achieve FFMIA compliance, they need to implement systems that give them 
reliable, useful, and timely information and do so using disciplined 
processes. However, these efforts far too often result in systems that 
do not meet their cost, schedule, and performance goals. For example, 
financial management system implementation problems continue at the 
Department of Defense (DOD), the Department of Health and Human 
Services (HHS), and the Department of Homeland Security (DHS). In part, 
to improve the outcome of financial management systems implementation 
and FFMIA compliance, OMB continues to move forward on a key 
initiative--the financial management line of business (FMLOB) which 
involves standardizing business processes and data elements 
governmentwide, incorporating these standards into core financial 
system requirements and software, and leveraging common solutions 
through a competitive environment of shared service providers. Although 
some aspects of the initiative have taken longer than OMB expected, OMB 
and the Financial Systems Integration Office (FSIO) have demonstrated 
continued progress toward implementation of the FMLOB initiative by 
issuing a common governmentwide accounting classification structure, 
financial services assessment guide, and standard business processes 
for funds and payment management. However, as we previously 
recommended,[Footnote 11] additional efforts, such as developing an 
overall concept of operations and identifying and defining additional 
standard business processes, are needed to address key aspects of this 
initiative. OMB officials told us their efforts on these aspects of 
this initiative are continuing, and we are working with OMB to gain a 
more in-depth understanding of its progress. 

While we are not making any new recommendations in this report, we 
reaffirm our prior recommendation aimed at enhancing OMB's audit 
guidance related to FFMIA assessments. Specifically, we recommended 
that OMB explore further clarification of the definition of 
"substantial compliance" to assist auditors and agency management to 
consistently apply criteria and evaluate FFMIA compliance. In 
commenting on a draft of this report, OMB agreed with our assessment 
that federal agencies still need to improve their financial systems so 
that reliable, useful, and timely financial management information is 
available for decision making. OMB stated that it was working 
aggressively to assist agencies in building a strong foundation of 
financial management practices. With regard to our prior recommendation 
for guidance clarifying the definition of substantial compliance, OMB 
has begun a significant re-write of OMB Circular No. A-127, Financial 
Management Systems, as well as an update to OMB's implementation 
guidance for FFMIA. OMB stated the re-write of OMB Circular No. A-127 
will clarify the definition of substantial compliance so that auditors 
and agency heads interpret the guidance more consistently. We will 
continue to work with OMB so that a clear definition of substantial 
compliance with FFMIA is developed and to address other concerns. Our 
detailed discussion of OMB's comments can be found in the Agency 
Comments and Our Evaluation section. We have reprinted OMB's comments 
in appendix VII. 

Background: 

FFMIA is part of a series of financial management reform legislation 
enacted since the early 1980s. This series of legislation started with 
the Federal Managers' Financial Integrity Act of 1982[Footnote 12] 
(FMFIA), which the Congress passed to strengthen internal controls and 
accounting systems throughout the federal government, among other 
purposes. Issued pursuant to FMFIA, the Comptroller General's Standards 
for Internal Control in the Federal Government[Footnote 13] provides 
the standards that are directed at helping agency managers implement 
effective internal control, an integral part of improving financial 
management systems. Internal control plays a major role in managing an 
organization and comprises the plans, methods, and procedures used to 
meet missions, goals, and objectives. In summary, internal control 
helps government program managers achieve desired results through 
effective management of public resources. 

Effective internal control also helps in managing change to cope with 
shifting environments and evolving demands and priorities. As programs 
change and agencies strive to enhance operational processes and 
implement new technological developments, management must continually 
assess and evaluate its internal control to ensure that the control 
activities being used are effective and updated when necessary. While 
agencies had achieved some early success in identifying and correcting 
material internal control and accounting system weaknesses, their 
efforts to implement FMFIA had not produced the results intended by the 
Congress and sufficiently improved general and financial management in 
the federal government. 

Therefore, beginning in the 1990s, the Congress passed additional 
management reform legislation to achieve these management improvements 
in the federal government. This legislation includes the (1) CFO Act of 
1990, (2) Government Performance and Results Act of 1993,[Footnote 14] 
(3) Government Management Reform Act of 1994,[Footnote 15] (4) FFMIA, 
(5) Clinger-Cohen Act of 1996,[Footnote 16] (6) Accountability of Tax 
Dollars Act of 2002,[Footnote 17] (7) Improper Payments Information Act 
of 2002,[Footnote 18] (8) Federal Information Security Management Act 
of 2002 (FISMA),[Footnote 19] and (9) Department of Homeland Security 
Financial Accountability Act of 2004.[Footnote 20] The combination of 
reforms ushered in by these laws, if successfully implemented, provides 
a solid foundation to improve the accountability of government programs 
and operations as well as to routinely produce valuable cost and 
operating performance information. These financial management reform 
laws reflect the importance of improving financial management of the 
federal government. Appendixes II through VI include details on the 
various requirements, guidance, standards, and checklists that support 
federal financial management. 

Guidance Related to FFMIA: 

OMB sets governmentwide financial management policies and requirements, 
as well as guidance related to FFMIA. OMB Circular No. A-127, Financial 
Management Systems, defines the policies and standards prescribed for 
executive agencies to follow in developing, operating, evaluating, and 
reporting on financial management systems. OMB Circular No. A-127 
references the series of publications entitled federal financial 
management systems requirements, issued by the Joint Financial 
Management Improvement Program (JFMIP)[Footnote 21] as the primary 
source of governmentwide requirements for financial management systems. 
Federal financial management systems requirements, among other things, 
provide a framework for establishing integrated financial management 
systems to support program and financial managers. Appendix III lists 
the series of federal financial management systems requirements 
published to date. 

In a January 4, 2001, memorandum, Revised Implementation Guidance for 
the Federal Financial Management Improvement Act, OMB provided guidance 
for agencies and auditors to use in assessing substantial compliance. 
The guidance describes the factors that should be considered in 
determining whether an agency's systems substantially comply with 
FFMIA's three requirements and provides guidance to agency heads to 
assist in developing corrective action plans for bringing their systems 
into compliance with FFMIA. There are examples included in the guidance 
on the types of indicators that should be used as a basis in assessing 
whether an agency's systems are in substantial compliance with FFMIA 
requirements. 

In addition, we have worked in partnership with the President's Council 
on Integrity and Efficiency[Footnote 22] (PCIE) to develop and maintain 
the joint GAO/PCIE Financial Audit Manual (FAM). The FAM presents a 
methodology that auditors may, but are not required to, use to perform 
financial statement audits of federal entities in accordance with 
professional standards and includes sections that provide specific 
procedures auditors should perform when assessing FFMIA 
compliance.[Footnote 23] These sections include guidance and detailed 
audit steps for testing agency financial management systems' 
substantial compliance with the requirements of FFMIA. The FAM guidance 
on FFMIA assessments recognizes that while financial statement audits 
offer some assurance on FFMIA compliance, auditors should design and 
implement additional testing to satisfy FFMIA criteria. Testing for 
compliance with FFMIA is efficiently accomplished, for the most part, 
as part of the work done in understanding agency systems in the 
internal control phase of the audit, and the FAM provides specific 
guidance on what additional testing should be performed, such as tests 
of information system controls and nonsampling control tests. 

Continued Emphasis Needed on Federal Financial Management and FFMIA 
Compliance: 

The purpose of financial management systems goes beyond providing the 
data necessary to comply with various financial reporting requirements 
to focus on routinely producing reliable, useful, and timely financial 
information that federal managers can use for day-to-day decision- 
making purposes. Recognizing that decision makers can benefit from a 
better understanding of the challenges and opportunities associated 
with federal financial management systems, the Comptroller General 
convened a forum[Footnote 24] on improving federal financial management 
systems in December 2007. According to several participants, producing 
accurate financial statements should be viewed as a by-product of 
effective business processes and financial management systems. We have 
consistently provided this perspective for a number of years in our 
prior reports. As in prior years, the auditors' fiscal year 2007 FFMIA 
assessments for the 24 CFO Act agencies illustrate that many agencies 
still do not have effective financial management systems, including 
processes, procedures, and controls in place that can produce reliable, 
useful, and timely financial information with which to make informed 
decisions on an ongoing basis. The primary goal of FFMIA is for 
agencies to improve financial management systems so that financial 
information from these systems can be used to help manage agency 
programs more effectively and enhance the ability to prepare auditable 
financial statements. Auditors reported a change in their FFMIA 
assessment for five agencies' systems that they determined are no 
longer in substantial noncompliance for fiscal year 2007. The auditors 
noted these agencies took corrective action in the areas of compliance 
with federal accounting standards and federal financial management 
systems requirements. However, in light of the significant deficiencies 
and problems that auditors are still reporting, we remain concerned 
that criteria for substantial compliance with FFMIA requirements are 
not well defined or consistently implemented across the 24 CFO Act 
agencies. 

Comptroller General's Forum Provides Useful Insight to FFMIA 
Implementation: 

Recognizing that decision makers can benefit from a better 
understanding of the challenges and opportunities associated with 
federal financial management systems, the Comptroller General convened 
a forum on December 11, 2007. The forum brought together knowledgeable 
and recognized financial management leaders from the federal 
government, including the CFO, Chief Information Officer, and IG 
communities, and selected other officials with extensive experience in 
financial management from both the public and private sectors. One of 
the themes from the forum was that federal financial management leaders 
should refocus their efforts on comprehending and meeting program 
managers' financial information requirements and not simply on meeting 
financial reporting compliance requirements. Despite agencies' emphasis 
on meeting financial reporting compliance requirements, about two 
thirds of forum participants (21 of 33 respondents) agreed that 
financial management systems are not able to provide or provide little 
information that is reliable, useful, and timely to assist managers in 
their day-to-day decision-making, which is the ultimate goal of FFMIA. 
Figure 1 shows 19 of the 24 CFO Act agencies received an unqualified 
opinion on their financial statements in fiscal year 2007. However, for 
8 of these 19 agencies, auditors reported that systems did not 
substantially comply with one or more of the three FFMIA requirements 
and that significant problems exist, as discussed later. 

Figure 1: Comparison of 2007 Financial Statement Audit Results to FFMIA 
Assessments: 

This figure is a combination of two charts showing comparison of 2007 
financial statement audit results to FFMIA assessments. 

24 CFO Act agencies' financial statement audit results: 

19 agencies: Unqualified opinion; 
5 agencies: Disclaimer or qualified opinion. 

13 CFO Act agencies' systems not substantially compliant with FFMIA: 

5 agencies: Disclaimer or qualified opinion; 
8 agencies: Unqualified opinion.  

[See PDF for image] 

Source: GAO analysis based on independent auditors financial statement 
audit reports prepared by agency inspectors general and contract 
auditors for fiscal year 2007. 

[End of figure] 

According to auditors, some of these 8 agencies have been able to 
obtain unqualified audit opinions through extensive labor-intensive 
efforts, which include using ad hoc procedures, expending significant 
resources, and making billions of dollars in adjustments to derive 
financial statements. This is usually the case when agencies have 
inadequate systems that are not integrated and routinely reconciled. 
These time-consuming procedures must be combined with sustained efforts 
to improve agencies' underlying financial management systems and 
controls. Forum participants said that producing accurate financial 
statements should be viewed as a byproduct of effective business 
processes and financial management systems. We have expressed a similar 
viewpoint in the past.[Footnote 25] If agencies continue year after 
year to rely on costly and time-intensive manual efforts to achieve or 
maintain unqualified opinions, the Congress and others may be misled as 
to the true status of agencies' financial management systems 
capabilities. 

While work performed in auditing financial statements would naturally 
offer some perspective regarding FFMIA compliance, the work necessary 
to assess substantial compliance of systems with the FFMIA requirements 
has a complementary but broader focus than that performed for purposes 
of rendering an opinion on the financial statements. In performing 
financial statement audits, auditors generally focus on the capability 
of the financial management systems to process and summarize financial 
information that flows into the financial statements. For purposes of 
FFMIA, financial management systems include systems, processes, 
procedures, and controls that produce the information management uses 
day to day, not just systems that produce annual financial statements. 
Thus, according to the FAM, to report on system compliance with FFMIA, 
the auditor should understand the design of and test, as needed, the 
financial management systems (including the financial portion of any 
mixed systems[Footnote 26]) used for managing financial operations, 
supporting financial planning, management reporting, budgeting 
activities, and systems accumulating and reporting cost information. 
Several forum participants expressed concern that because of the 
efforts devoted to preparing financial reports and meeting financial 
reporting compliance requirements, finance organizations have not 
focused sufficient attention on understanding and meeting the financial 
management needs of their own program managers. FFMIA was designed to 
lead to system improvements that would result in agency managers 
routinely having access to reliable, useful, and timely financial- 
related information to measure performance and increase accountability 
throughout the year. If significant adjustments are made at year end 
for financial statement reporting purposes, then management has more 
than likely been operating with inaccurate data throughout the year. 

FFMIA Assessments Disclose Continued Noncompliance and System 
Weaknesses: 

According to auditors, the majority of federal agencies' financial 
management systems are still not in substantial compliance with FFMIA 
requirements. As shown in figure 2, auditors reported that 13 of the 24 
CFO Act agencies' systems did not substantially comply with one or more 
of the three FFMIA requirements for fiscal year 2007. This compares 
with 17 agencies whose systems were reported as not substantially 
compliant with FFMIA requirements for fiscal year 2006. Based on our 
review of the fiscal year 2007 audit reports for the 13 agencies 
reported to have systems not in substantial compliance with one or more 
of FFMIA's three requirements, noncompliance with federal financial 
management systems requirements was the most frequently auditor-cited 
deficiency of the three FFMIA requirements. 

Figure 2: Auditors' FFMIA Assessments for Fiscal Years 1998 through 
2007: 

This figure is a bar graph showing auditors' FFMIA assessments for 
fiscal years 1998 through 2007. The X axis represents the fiscal year, 
and the Y axis represents CFO Act agencies not in compliance. 

Fiscal year: 1998; 
CFO Act agencies not in compliance: 21. 

Fiscal year: 1999; 
CFO Act agencies not in compliance: 21. 

Fiscal year: 2000; 
CFO Act agencies not in compliance: 19. 

Fiscal year: 2001; 
CFO Act agencies not in compliance: 20. 

Fiscal year: 2002; 
CFO Act agencies not in compliance: 19. 

Fiscal year: 2003; 
CFO Act agencies not in compliance: 17. 

Fiscal year: 2004; 
CFO Act agencies not in compliance: 16. 

Fiscal year: 2005; 
CFO Act agencies not in compliance: 18. 

Fiscal year: 2006; 
CFO Act agencies not in compliance: 17. 

Fiscal year: 2007; 
CFO Act agencies not in compliance: 13. 

[See PDF for image] 

Source: GAO complied from independent auditors' financial statement 
audit reports prepared by agency inspectors general and contract 
auditors for fiscal year 1998 through 2007. 

[End of figure] 

Auditors for six CFO Act agencies reported a change in the FFMIA 
assessment for fiscal year 2007. The auditor for one agency, EPA, 
changed its FFMIA assessment from no instances of substantial 
noncompliance in fiscal year 2006, to not being in substantial 
compliance with FFMIA requirements for fiscal year 2007 because of 
problems related to security over certain information systems. The 
auditors for five agencies reported agencies' financial management 
systems[Footnote 27] were no longer in substantial noncompliance. As 
discussed later, auditors for these five agencies noted that the 
agencies took corrective action in the areas of federal accounting 
standards and federal financial management systems requirements. 
However, as we have previously reported,[Footnote 28] we are still 
concerned that criteria for substantial compliance are not well defined 
or consistently implemented across the 24 CFO Act agencies. In light of 
the significant deficiencies and problems that auditors are still 
reporting, it appears that agencies and auditors may be interpreting 
OMB's January 4, 2001, FFMIA guidance to mean that if an agency has no 
material weaknesses, it is in substantial compliance with the three 
FFMIA requirements. Further, we caution that the number of agencies 
reported as noncompliant may be even greater because all but one 
auditor provided negative assurance.[Footnote 29] As we have previously 
reported,[Footnote 30] when auditors express negative assurance, the 
auditors are not saying that they determined the systems to be 
substantially compliant, but that the work performed did not identify 
instances of noncompliance. Therefore, the auditors may not have 
identified all instances of noncompliance with FFMIA requirements and 
included all problems in their reports. 

Based on our review of the fiscal year 2007 audit reports for the 13 
agencies reported to have systems not in substantial compliance with 
one or more of FFMIA's three requirements, noncompliance with federal 
financial management systems requirements was the deficiency auditors 
most frequently cited of the three FFMIA requirements. To better 
understand the underlying issues regarding agencies' noncompliance with 
federal financial management systems requirements, we divided this 
requirement into four problem areas including nonintegrated systems, 
inadequate reconciliation procedures, lack of accurate and timely 
recording, and weak security over information systems. These four 
problem areas related to federal financial management systems 
requirements, plus the two areas related to noncompliance with the SGL 
and lack of adherence to federal accounting standards result in six 
problem areas. Figure 3 shows the number of agencies with problems 
reported in each of the six areas for fiscal year 2007. 

Figure 3: Number of Reported Problems for 13 Agencies with FFMIA 
Noncompliant Systems for Fiscal Year 2007: 

This figure is a bar graph showing the number of reported problems for 
13 agencies with FFMIA noncompliant systems for fiscal year 2007. The X 
axis represents problem areas, and the Y axis represents CFO Act 
agencies. 

Problem area: Nonintegrated financial management systems;
CFO Act agencies: 8. 

Problem area: Inadequate reconciliation procedures; 
CFO Act agencies: 10. 

Problem area: Lack of accurate and timely recording; 
CFO Act agencies: 11. 

Problem area: Weak security over information systems; 
CFO Act agencies: 11. 

Problem area: Lack of adherence to federal accounting standards; 
CFO Act agencies: 7. 

Problem area: Noncompliance with the SGL; 
CFO Act agencies: 5. 

[See PDF for image] 

Source: GAO analysis based on independent auditors' financial statement 
audit reports prepared by agency inspectors general and contract 
auditors for fiscal year 2007. 

[A] Problem reflects noncompliance with federal financial management 
systems requirements. 

[End of figure] 

The weaknesses reported by the auditors ranged from serious, pervasive 
systems problems to less serious problems that may affect only one 
aspect of an agency's accounting operation. While at some agencies, the 
problems were so serious that they affected the auditor's opinion on 
the agency's financial statements, at other agencies, the auditors 
cited problems that represented significant deficiencies in the design 
or operation of internal control, but were determined not to be 
material to the financial statements taken as a whole. 

Table 1 illustrates the potential effect these six types of problems 
can have on an agency's financial management. For example, the auditor 
for the Department of the Treasury reported that IRS personnel rely on 
resource-intensive compensating procedures to prepare its financial 
statements in a timely manner because of serious internal control and 
financial management systems deficiencies. These challenges affect 
IRS's ability to fulfill its responsibilities as the nation's tax 
collector because its managers lack accurate, useful, and timely 
financial information and sound controls with which to make fully 
informed decisions day-to-day and to ensure ongoing accountability. 

Table 1: Six Problem Areas and the Potential Effect on Agency Financial 
Management: 

Problem area: Nonintegrated financial management systems[A]; 
Effect: When agencies do not have an integrated financial management 
system, they are often forced to rely on ad hoc programming, analysis, 
or actions such as duplicative transaction entries. In these 
situations, agencies must either expend major efforts and resources to 
generate financial information that their systems should be able to 
provide on a recurring basis or not have it. 

Problem area: Inadequate reconciliation procedures[A]; 
Effect: Failure to perform reconciliations puts agencies at risk of 
operating with incomplete and inaccurate financial data on which to 
base decisions. 

Problem area: Lack of accurate and timely recording of financial 
information[A]; 
Effect: Recording transactions in the general ledger in an untimely 
manner can result in inaccurate reporting in agencies' financial 
reports and other management reports that are used to guide managerial 
decision-making. 

Problem area: Weak security controls over information systems[A]; 
Effect: Significant computer security weaknesses in systems results in 
federal data at risk of inadvertent or deliberate misuse, financial 
information at risk of unauthorized modification or destruction, 
sensitive information at risk of inappropriate disclosure, and critical 
operations at risk of disruption. 

Problem area: Lack of adherence to federal accounting standards; 
Effect: Federal accounting standards form the foundation for preparing 
consistent and meaningful financial statements and other financial 
reports both for individual agencies and the government as a whole. 
Without adherence to federal accounting standards, agencies cannot be 
assured that the financial reports contain reliable information about 
the financial position, activities, and results of operations of their 
programs and activities on an ongoing basis. 

Problem area: Noncompliance with the SGL; 
Effect: The SGL is intended to improve data stewardship throughout the 
federal government; enabling consistent reporting at all levels within 
the agencies and providing comparable data and financial analysis 
governmentwide. If the SGL is not properly implemented, agencies cannot 
be assured that information in their financial statements is properly 
and consistently compiled and reported. 

Source: GAO analysis of federal financial management systems 
requirements, related laws, and guidance. 

[A] Problem reflects noncompliance with federal financial management 
systems requirements. 

[End of table] 

Although Improvements Reported in FFMIA Compliance, Concerns Remain 
with FFMIA Guidance: 

For fiscal year 2007, auditors for five agencies no longer reported a 
lack of substantial compliance with FFMIA requirements. While auditors 
reported that improvements at those five agencies were because of 
agency-implemented corrective actions, in some cases, it appears that 
varying interpretations of OMB's FFMIA guidance on the definition of 
"substantial compliance" may have played a role. The implementation 
guidance provides indicators of substantial compliance, such as whether 
an agency's "audit disclosed no material weaknesses in internal control 
that affect the agency's ability to prepare financial statements and 
related disclosures."[Footnote 31] However, this indicator only 
addresses the federal accounting standards requirement of FFMIA, not 
the federal financial management systems or the SGL requirement. 

We are concerned that auditors are interpreting OMB's FFMIA 
implementation guidance to mean that if an agency has no material 
weaknesses in controls over the area of financial reporting, it is 
compliant with FFMIA. For example, the auditor for Justice told us that 
the reduction of certain material weaknesses to significant 
deficiencies was a factor for the change in its FFMIA assessment of 
substantial compliance. Based primarily on the information contained in 
the agencies' performance and accountability reports, the following 
summarizes how auditors determined that five agencies were no longer 
substantially noncompliant in fiscal year 2007. 

* Department of Energy--The Department of Energy's auditor reported one 
material weakness related to FFMIA noncompliance in the area of federal 
accounting standards at the end of fiscal year 2006. For 2006, the 
auditor reported that the department did not properly account for 
obligations and undelivered orders, which affected the accuracy, 
validity, and completeness of these account balances. During fiscal 
year 2007, the department reported it took corrective actions 
including, but not limited to, improving several reports and related 
reconciliation processes. Because of these efforts, the auditor 
reported that the corrective actions related to the material weakness 
on obligations and undelivered orders were fully implemented and 
considered the finding closed in fiscal year 2007. In fiscal year 2007, 
Energy had a significant deficiency related to network vulnerabilities 
and weaknesses in access and other security controls in the 
department's unclassified computer information systems. The auditor 
concluded that its tests disclosed no instances in which the 
department's financial management systems did not substantially comply 
with the three FFMIA requirements for fiscal year 2007. 

* Department of the Interior--At the end of fiscal year 2006, the 
Department of the Interior's auditor reported FFMIA-related findings in 
the area of federal accounting standards, that resulted in the 
department not being in substantial compliance with FFMIA requirements. 
The findings included a material weakness related to controls over 
Indian Trust Funds and a reportable condition on the improper 
disclosure of the condition of museum collections. According to 
management, Interior implemented corrective actions during fiscal year 
2007, including closing 9,400 probate cases and deploying the Trust 
Asset and Accounting Management System. As a result, the auditor 
reduced the Indian Trust Fund finding to a significant deficiency and 
closed the museum collection finding entirely in fiscal year 2007. 
While the department invested a significant amount of resources to 
improve its controls over Indian Trust Funds, the auditor noted that 
Interior needs to continue its efforts to resolve historical 
differences and to improve procedures and internal controls for 
entering and maintaining Trust Fund information. In addition, a repeat 
significant deficiency was reported by the auditor on general and 
application controls over financial management systems. The auditor 
stated that the previously mentioned findings were not significant 
enough to warrant concluding that the department was substantially 
noncompliant with FFMIA requirements for fiscal year 2007. 

* Department of Justice--Justice's auditor reported FFMIA-related 
findings in the area of federal financial management systems 
requirements that resulted in the department not being in substantial 
compliance with FFMIA requirements at the end of fiscal year 2006. One 
of these findings was a repeat material weakness related to the 
department's financial management systems' general and application 
controls. According to the auditor, during fiscal year 2007, three out 
of the four components that had long-standing material weaknesses in 
this area--United States Marshals Service, Office of Justice Programs, 
and the Bureau of Alcohol, Tobacco, Firearms and Explosives--made 
enough improvements to internal controls over their information system 
environment to reduce the finding from a material weakness to a 
significant deficiency. Some of the reported corrective actions 
included increasing security awareness and training, and implementing 
stronger password setting policy. In its commentary and summary of 
Justice's annual financial statement for fiscal year 2007,[Footnote 32] 
the Justice IG made the following comment about Justice's financial 
system environment: "Inadequate, outdated, and in some cases non- 
integrated financial management systems do not provide certain 
automated financial transaction processing activities that are 
necessary to support management's need for timely and accurate 
financial information throughout the year." 

In the IG's 2007 list of top management and performance challenges 
facing Justice,[Footnote 33] the IG also reported that "the 
Department's efforts over the past few years to implement the Unified 
Financial Management System (UFMS) to replace the seven major 
accounting systems currently used throughout the Department have been 
subject to fits and starts. Three years after the Department selected a 
vendor for the unified system it has made little progress in deploying 
the UFMS. The Department notes that problems with funding, staff 
turnover, and other competing priorities have caused the delays in 
implementing the UFMS. Until that time, Department-wide accounting 
information will have to continue to be produced manually, a costly 
process that undermines the Department's ability to prepare financial 
statements that are timely and in accordance with generally accepted 
accounting principles. Furthermore, the Federal Bureau of Investigation 
and United States Marshals Service will not be able to achieve 
compliance with the FFMIA requirement to record all activity at the 
United States Standard General Ledger transaction level until the UFMS 
has been fully implemented." We also noted that all nine of Justice's 
components still had at least one significant deficiency or material 
weakness related to general and application controls, and five out of 
the nine components had findings related to a second significant 
deficiency on improving internal controls to ensure that transactions 
are properly recorded, processed, and summarized to permit the 
preparation of financial statements in accordance with generally 
accepted accounting principles. Justice's auditor concluded that its 
tests disclosed no instances in which the department's financial 
management systems did not substantially comply with the three 
requirements of FFMIA for fiscal year 2007. 

* Department of Labor--Labor's auditor reported FFMIA-related 
reportable conditions in the area of federal financial management 
systems requirements, which resulted in the department not being in 
substantial compliance with FFMIA requirements at the end of fiscal 
year 2006. These reportable conditions related to lack of strong 
application controls over access to and protection of financial 
information, lack of strong logical security controls to secure Labor's 
networks and information, and weaknesses noted in the change control 
process for a benefits system. In addition, Labor's fiscal year 2006 
FISMA report identified a significant deficiency related to a mixed 
system. According to management, Labor pursued an aggressive 
remediation process during fiscal year 2007 by revising computer 
security guidance and performing access controls testing and evaluation 
for all major information systems. Labor's auditors noted improvements 
in the areas of general computer controls related to a Labor benefits 
system, controls over the mixed system cited in the fiscal year 2006 
FISMA report, and updated policies and procedures. 

For fiscal year 2007, auditors for Labor reported 2 prior year 
reportable conditions as one significant deficiency related to the lack 
of adequate controls over access to key financial and support systems. 
Specifically, the auditor noted issues that were present in multiple 
financial systems across the department such as inactive accounts were 
not disabled or deleted in a timely manner; generic accounts existed on 
systems; and access to sensitive files, directories, or software was 
not restricted. According to the auditor, each access control issue 
mentioned presented a reasonably possible chance to adversely affect 
Labor's ability to initiate, authorize, record, process, or report 
financial data. The auditor also reported that these access control 
weaknesses could lead to users with inappropriate access to financial 
systems; inefficient processes, lack of completeness, accuracy, or 
integrity of financial data; and/or the lack of detection of unusual 
activity within financial systems. 

As a result of the access control weaknesses identified, the IG 
reported an access control significant deficiency in conjunction with 
its testing of compliance with FISMA for fiscal year 2007. However, the 
IG's fiscal year 2007 FISMA report did not communicate significant 
deficiencies for specific systems; instead, it reported significant 
deficiencies by control type, grouping all impacted systems together in 
each deficiency. Labor's auditors stated, as a result, they could not 
determine the severity of deficiencies for any individual financial or 
mixed system. Labor's auditor concluded that the department complied, 
in all material respects, with the requirements of FFMIA as of 
September 30, 2007. 

* Small Business Administration (SBA)--At the end of fiscal year 2006, 
auditors reported that SBA was not substantially compliant with FFMIA 
requirements in the area of federal financial management systems 
requirements. The related finding involving weak information technology 
security controls was characterized as a reportable condition. During 
fiscal year 2007, the auditor noted improvements in formalizing 
policies and procedures over granting users emergency access, 
documenting reviews of remote users, and formalizing continuity of 
operations plans. Despite the identified improvements, the auditors 
continued to report issues in the areas of security access controls, 
software program changes, and end-user computing and reported the 
condition as a significant deficiency. For fiscal year 2007, the 
auditor reported no instances in which the department's financial 
management systems did not substantially comply with the three 
requirements of FFMIA. 

We have previously reported[Footnote 34] that auditors have expressed a 
need for clarification on the definition of "substantial compliance" 
with FFMIA. Further, when asked to what extent agreement exists on the 
definition of substantial compliance with FFMIA, 20 of 35 participants 
at the December 2007 Comptroller General forum stated that agreement 
exists to little or no extent while the other 15 of 35 believed 
agreement exists to a moderate extent. We initially recommended that 
OMB clarify its guidance on the meaning of substantial compliance in 
our report[Footnote 35] covering FFMIA fiscal year 2000 results and 
have reiterated this recommendation thereafter with OMB action starting 
this year. In prior years, OMB has responded that it has been focusing 
on various initiatives, and it agreed to consider clarifying the 
definition of "substantial compliance" in future policy and guidance 
updates. Last year OMB stated that in its update to Circular No. A-127, 
Financial Management Systems, its goal would be to simplify FFMIA 
compliance requirements as well as to better balance the FFMIA 
objectives of generating audited financial statements and providing 
meaningful information for decision makers. Accordingly, OMB agreed to 
take this recommendation under advisement and is currently revising its 
guidance. As we have previously reported,[Footnote 36] without a 
consistent agreement and application of a common definition of 
substantial compliance, the status of agency financial management 
systems' compliance remains uncertain. 

Although OMB's January 4, 2001, FFMIA implementation guidance includes 
examples of compliance indicators, we found in the past that several 
agency auditors used the indicators as a checklist for determining an 
agency's systems compliance. In our view, a checklist approach is 
inappropriate for assessing the substantial compliance of agency 
systems, including processes, procedures, and controls with FFMIA. This 
approach also does not meet the expectations of the Congress[Footnote 
37] in requiring the auditor to insist on rigorous adherence to the 
accounting standards in reporting whether the agency's financial 
management systems substantially comply with the three requirements of 
FFMIA. Congress also expected that the audit community would discharge 
this compliance function consistent with established practices of the 
profession and the exercise of sound professional judgment. A 
comprehensive approach that considers key systems' functionalities, 
such as tests of information system controls and nonsampling control 
tests, is essential for auditors to obtain assurance that the agencies' 
systems provide reliable, useful, and timely information for decision 
makers on an ongoing basis throughout the year and not just for 
preparing year-end financial statements. 

OMB's guidance lays out the key factors that auditors should consider 
when assessing whether an agency's systems are substantially compliant. 
OMB's guidance calls for auditors to use their professional judgment 
when considering factors such as providing reliable and timely 
information for managing current operations; accounting for assets so 
they can be properly protected from loss, misappropriation, or 
destruction; and whether a system's performance prevents an agency from 
meeting specific FFMIA requirements. Nonetheless, because auditors have 
focused their consideration of FFMIA substantial compliance on issues 
related to the financial statement audit, it is important that the 
meaning of substantial compliance be clarified and refocused to include 
other aspects in addition to financial statement audit results. While 
we agree that the use of professional judgment is critical, we continue 
to believe that a consensus is needed on what constitutes substantial 
compliance. 

In regard to our previous recommendation that OMB explore further 
clarification of the definition of "substantial compliance," OMB is in 
the process of revising OMB Circular No. A-127 and its FFMIA 
implementation guidance. In May 2008, OMB issued a draft Circular No. A-
127 for CFO Council review and comment. In our comments on the draft 
Circular No. A-127, we reemphasized our concerns with, among other 
things, the need for an appropriate definition of substantial 
compliance that focuses on financial management systems' capabilities 
beyond financial statement preparation. OMB is considering the comments 
received and had not issued a public draft as of August 2008, but is 
planning to finalize the guidance in October 2008. 

Challenges Remain to Achieve Goals of FFMIA: 

Auditors' FFMIA assessments pointed out that many of the CFO Act 
agencies have significant problems with the financial management 
systems in use today. For agencies to achieve FFMIA compliance, they 
need to implement systems that give them reliable, useful, and timely 
information and do so using disciplined processes. The modernization of 
federal financial management systems has been a long-standing challenge 
at many federal agencies. Past systems implementation attempts have 
failed to deliver the promised capability on time and within budget. 
For example, we reported in September 2004[Footnote 38] that HHS did 
not effectively implement the best practices needed to reduce the risks 
associated with the implementation of a new system. Three years later, 
auditors report HHS continues to experience problems converting to the 
system. 

In part, to combat the past failures of individual agencies' efforts, 
OMB developed the FMLOB initiative, which involves standardizing 
business processes and data elements governmentwide, and leveraging 
common solutions through a competitive environment of shared service 
providers to which agency financial management systems can be migrated. 
The initiative is intended to enable seamless data integration across 
agencies and avoid costly and redundant investment in "in-house" 
financial management system solutions. Although OMB continues to make 
progress on this initiative and priorities have been developed to focus 
efforts through December 2009, some aspects of the initiative have 
taken longer than OMB expected. We have previously reported[Footnote 
39] concerns with this initiative, such as the lack of a concept of 
operations and need for a clear plan for migrating agencies to shared 
service providers. Similarly, participants at the forum expressed 
uncertainties about the previous goal for migrating the majority of 
agencies to a shared service provider by 2011. 

System Implementation Problems Plague Agencies: 

One of our ongoing and consistent reporting themes has been that the 
modernization of federal financial management systems has been a long- 
standing challenge at many federal agencies across the government. 
While the development of a financial management system can never be 
risk free, effective implementation of best practices in systems 
development and implementation efforts (commonly referred to as 
disciplined processes)[Footnote 40] can reduce those risks to 
acceptable levels. Nevertheless, agency efforts far too often result in 
systems that do not meet their cost, schedule, and performance goals. 
While agencies anticipate that the new systems will provide reliable, 
useful, and timely data to support managerial decision making, our work 
and that of others has shown that has often not been the case. For 
example, modernization efforts at DOD, HHS, and DHS have been hampered 
by agencies not following disciplined processes. 

* As we reported in July 2007,[Footnote 41] the Army's approach for 
investing about $5 billion over the next several years in its General 
Fund Enterprise Business System, Global Combat Support System-Army 
Field/Tactical,[Footnote 42] and Logistics Modernization Program did 
not include alignment with the Army enterprise architecture or use of a 
portfolio-based business system investment review process. Moreover, we 
reported that the Army's lack of a concept of operations has 
contributed to its failure to take full advantage of business process 
reengineering opportunities that are available when using an enterprise 
resource planning solution. Further, the Army did not have reliable 
processes--such as an independent verification and validation function, 
or analyses, such as economic analyses--to support its management of 
these programs. We concluded that until the Army adopts a business 
system investment management approach that provides for reviewing 
groups of systems and making enterprise decisions on how these groups 
will collectively interoperate to provide a desired capability, it runs 
the risk of investing significant resources in business systems that do 
not provide the desired functionality and efficiency. 

* As we previously reported in September 2004,[Footnote 43] HHS did not 
follow key disciplined processes necessary to reduce the risks 
associated with implementing the Unified Financial Management System 
(UFMS) to acceptable levels. We identified problems in such key areas 
as requirements management, including developing a concept of 
operations, data conversion, and risk management. Three years later, in 
fiscal year 2007, HHS's auditors reported[Footnote 44] that serious 
financial system issues continue as a result of conversion problems. 
For example, over 800 entries, exceeding $170 billion, had to be 
manually recorded into the UFMS system; more than $1 billion in 
transactions were inappropriately posted; and a cumbersome, manual 
process is used to compile its financial statements. Sustained efforts 
will be necessary to overcome these continuing serious weaknesses. 

* In June 2007, we reported[Footnote 45] that DHS lacked a financial 
management strategy that included a formal strategic financial 
management plan to implement or migrate to an integrated system. In 
addition, DHS's concept of operations did not contain an adequate 
description of the legacy systems and a clear articulation of the 
vision that should guide the department's improvement efforts, and key 
requirements developed for the project were unclear and incomplete. 
Since then, DHS has developed a strategy to consolidate the 
department's financial systems down to two platforms--SAP and Oracle. 
However, according to a recent DHS IG report,[Footnote 46] DHS did not 
perform a complete analysis of all potential systems and service 
providers as part of its process to select a financial systems 
solution. As a result of a bid protest, in a March 17, 2008, ruling, 
the United States Court of Federal Claims held that DHS's sole source 
procurement for financial systems application software had violated a 
provision in the Competition in Contracting Act requiring full and open 
competition using competitive procedures[Footnote 47] and required DHS 
to conduct a competitive procurement.[Footnote 48] In response to this 
decision, DHS is revisiting its financial systems consolidation 
strategy. 

As illustrated by these examples, more discipline is needed in 
implementation efforts to avoid the problems that can occur when best 
practices are not followed. Similarly, participants at the forum stated 
that it is time to start putting into practice the lessons learned from 
previous implementation efforts. As part of an effort to begin 
confronting these challenges, forum participants offered a range of 
perspectives, insights, and examples. Experience related to financial 
management, human capital management, systems ownership, customization 
of commercial off-the-shelf software, and the purchase of shared 
services has provided useful insights that should help financial 
managers avoid some of the obstacles that impeded past projects. 
Consistent with our long-held views, financial managers at the forum 
also identified various useful system implementation practices, 
including conducting independent verification and validation, and 
periodically reevaluating system implementation projects. 

Financial Management Line of Business Initiative Continues to Evolve: 

In March 2004, OMB launched the FMLOB initiative, in part, to improve 
the outcome of financial management system implementations so that 
agencies have systems that ensure ongoing accountability and generate 
reliable, useful, and timely information for decision-making purposes 
emphasized by FFMIA. Since then, OMB and FSIO have continued to make 
gradual progress toward achieving FMLOB goals[Footnote 49] by issuing a 
common governmentwide accounting classification structure, a financial 
services assessment guide, and standard business processes for funds 
and payment management, as well as developing other planning tools 
designed to leverage these standards and shared solutions. 

However, additional efforts are needed to address recommendations 
included in our March 2006 report regarding key aspects of this 
initiative, such as developing an overall concept of operations, 
identifying and defining additional standard business processes, and 
ensuring that agencies do not continue to develop and implement their 
own stove-piped systems.[Footnote 50] We are currently working with OMB 
to gain a more in-depth understanding of FMLOB-related efforts and 
progress toward addressing these recommendations. The following 
provides an overview of the status of OMB's efforts and concerns 
identified in these areas. 

* Developing a concept of operations. A concept of operations would 
provide a useful tool to explain how financial management systems can 
operate cohesively in conjunction with other related systems and to 
help minimize an agency's individualized, stove-piped efforts. 
Participants attending the forum confirmed our concerns regarding the 
need for this important tool, pointing out that OMB's various lines of 
business initiatives are serving to preserve existing stovepipes. For 
example, participants said it is unclear why separate lines of business 
are needed for budget and financial management. Although OMB officials 
told us that a draft concept of operations document is currently under 
review, the extent to which these concerns will be addressed is 
unclear. 

* Identifying and implementing standard business processes. In a 
January 2008 memo summarizing FMLOB efforts and priorities,[Footnote 
51] OMB recognized the risk associated with implementing business 
processes that are not standardized across government as well as the 
need to develop additional guidance and other tools. Specifically, the 
memo states that once business standards have been completed, 
incorporated into core financial system requirements, and tested during 
the FSIO software qualification and certification process, shared 
service providers will only be permitted to utilize the certified 
products as configured. To date, two standard business processes have 
been issued, and OMB expects three additional standard business 
processes to be finalized in December 2008.[Footnote 52] Recognizing 
the need to further develop FMLOB guidance and tools, OMB identified 
priorities for the remainder of 2008 and 2009, which include 
identifying and developing additional business standards (e.g., 
interface data elements), expanding migration planning guidance, 
finalizing and developing cost and performance measurements related to 
FMLOB business standards, incorporating these standards into core 
financial systems requirements and software, and updating related 
testing methodology and scenarios. 

* Establishing a clear migration path. To ensure that agencies migrate 
to a shared service provider in accordance with OMB's stated approach 
rather than attempt to develop and implement their own stove-piped 
business systems, we previously recommended that OMB establish a clear 
migration path or timetable for future migrations. OMB estimates for 
when migrations will be completed are evolving and no firm timeframes 
have been set. OMB's general guidance is that agencies should migrate 
to a shared service provider when it is cost effective to do so and 
they have maximized the return on investment in the current system. 
Although OMB previously established a goal of migrating the majority of 
agencies toward the use of shared service providers by 2011, more 
recent information indicates that agency migrations will take longer 
than OMB expected. For example, participants attending the forum 
appeared uncertain regarding the ability of their respective 
organizations to reach this goal by 2011. OMB's more recent 
estimate[Footnote 53] indicates that many migrations are scheduled 
through fiscal year 2015 and that some agency migrations have not yet 
been scheduled. Agency migrations to a shared service provider are an 
important aspect to achieving FMLOB goals. Even without a clear 
migration path, some agencies may readily migrate to a shared service 
provider to minimize the tremendous undertaking of implementing or 
significantly upgrading a financial system. However, other agencies may 
continue efforts to implement stand-alone systems that place additional 
resources at risk because of potential financial system implementation 
failures. 

Further, other concerns that exist within the federal financial 
management community include the availability of sufficient resources, 
the viability of the initiative on a governmentwide basis, and the 
potential loss of control of critical financial functions. For example, 
none of the forum participants believed the resources available to 
implement the initiative are fully adequate. Some participants also 
indicated that some financial leaders may be reluctant to transition 
their agencies' financial management activities on a wholesale basis 
because of their fear of losing control of critical functions and lack 
of trust in a shared service providers' ability to effectively meet 
their needs. 

Conclusion: 

Shifting financial management leaders' focus from meeting financial 
reporting compliance requirements to comprehending and meeting program 
managers' financial information requirements is key to more meaningful, 
value-added financial management. Given our nation's current fiscal 
environment, reliable financial information for prudent and forward- 
thinking decision making is imperative. If properly developed, 
implemented, and managed, financial management systems can provide 
essential financial data in support of day-to-day managerial decision 
making--the ultimate goal of FFMIA. To accomplish this goal, CFO Act 
agencies must continue to strive toward routinely producing not only 
annual financial statements that can pass the scrutiny of a financial 
audit, but also other meaningful financial and performance data. Over a 
decade has passed since the enactment of FFMIA, and the majority of 
agencies continue to lack financial management systems--including 
processes, procedures, and controls--that substantially comply with the 
requirements of the act, even though the majority of agencies are 
achieving "clean" audit opinions. Consistent and diligent OMB 
commitment and oversight toward achieving financial management system 
capabilities and the common goals of the FMLOB initiative and FFMIA are 
essential. In our view, the indicators included in OMB's guidance are 
not a substitute for the rigorous criteria needed for assessing 
substantial compliance with FFMIA. While we are not making any new 
recommendations in this report, we will continue to work with OMB to 
help ensure that it provides agency management and auditors with the 
guidance needed to bring about reliable and consistent assessments of, 
and meaningful improvements in, financial management systems as 
envisioned by FFMIA. Accordingly, we reiterate our prior recommendation 
for OMB to clarify its guidance on the meaning of "substantial 
compliance" with FFMIA. Significant and long-standing obstacles remain 
for developing and implementing effective financial management systems, 
including processes, procedures, and controls. It is important that 
emphasis on correcting these deficiencies be sustained by the current 
administration as well as the new administration that will be taking 
office next year. Continued congressional oversight will also be 
crucial in transforming federal financial management systems. 

Agency Comments and Our Evaluation: 

We received written comments (reprinted in app. VII) from the Deputy 
Controller, Office of Federal Financial Management, Office of 
Management and Budget on a draft of this report. In its comments, OMB 
agreed with our assessment that federal agencies still need to improve 
their financial systems so that reliable, useful, and timely financial 
management information is available for decision making. OMB stated 
that it was working aggressively to assist agencies in building a 
strong foundation of financial management practices through OMB's 
financial management and systems oversight and under the FMLOB 
initiative. According to OMB, both efforts support the goals of FFMIA 
to improve governmentwide financial management and to facilitate timely 
and reliable information for day-to-day management. While OMB stated 
that the number of noncompliances with FFMIA was reduced to 10, 
compared to 12 for the previous year, that number differed from our 
report findings due to the fact that OMB's number was based on the 
assessments made by the 24 CFO Act agency heads rather than by the 
independent auditors as we reported. 

With regard to our prior recommendation for guidance that clarifies the 
definition of substantial compliance, OMB has begun a significant re- 
write of OMB Circular No. A-127, Financial Management Systems, as well 
as an update to OMB's implementation guidance for FFMIA. OMB stated the 
re-write of OMB Circular No. A-127 will clarify the definition of 
substantial compliance so that auditors and agency heads interpret the 
guidance more consistently. We will continue to work with OMB by 
providing comments and recommendations on the draft so that a clear 
definition of substantial compliance with FFMIA is developed and to 
address other concerns. OMB also provided technical comments on a draft 
of this report that we incorporated as appropriate. In addition, we 
also received technical comments from several agencies cited in the 
report and incorporated them as appropriate. 

We are sending copies of this report to the Chairman and Ranking 
Member, Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security, Senate 
Committee on Homeland Security and Governmental Affairs, and to the 
Chairman and Ranking Member, Subcommittee on Government Management, 
Organization, and Procurement, House Committee on Oversight and 
Government Reform. We are also sending copies to the Director, Office 
of Management and Budget; the heads of the 24 CFO Act agencies in our 
review; and agency CFOs and Inspectors General. Copies will be made 
available to others upon request. In addition, this report will be 
available at no charge on the GAO web site at [hyperlink, 
http://www.gao.gov]. 

This report was prepared under the direction of Kay L. Daly, Acting 
Director, Financial Management and Assurance, who may be reached at 
(202) 512-9095 or dalykl@gao.gov if you have any questions. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff that made key 
contributions to this report are listed in appendix VIII. 

Signed by: 

Kay L. Daly: 
Acting Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Scope and Methodology: 

We reviewed the fiscal year 2007 financial statement audit reports for 
the 24 Chief Financial Officer (CFO) Act agencies contained in their 
performance and accountability reports. We further analyzed and 
compiled the auditors' assessments of agency financial systems' 
compliance and the problems that affect Federal Financial Management 
Improvement Act (FFMIA) compliance. We did not re-perform the auditors' 
work as it was beyond the scope of this engagement. To determine 
whether the data were sufficiently reliable, we performed the following 
procedures. We gained an understanding of the independence and quality 
control environments at the respective auditors that made the agencies' 
FFMIA assessment; leveraged our understanding of the methodology used 
by the inspectors general (IG) and their contract auditors in past 
years to reach conclusions on FFMIA compliance at the respective 
agencies; considered management responses to the auditor's findings and 
conclusions; and conducted interviews to improve our understanding of 
the procedures applied and/or conclusions drawn, where appropriate. We 
also reviewed the data for obvious inconsistencies or errors, 
completeness, and changes from the prior year. When we found data which 
were inconsistent or incomplete we brought them to the attention of the 
cognizant IG staff or contract auditor and worked with them to resolve 
any issues before using the data as a basis for this report. When we 
encountered data that varied from the prior year, we reviewed the 
performance and accountability report and auditor's report to determine 
the reason for the change. We conducted interviews with the auditors 
and IG staffs, and obtained selected supporting documentation. Based on 
these actions, we determined that the data from these reports were 
sufficiently reliable for the purposes of using the work of other 
auditors in our report. 

Using the auditors' reports for 13 of the 24 CFO Act agencies that 
auditors reported as noncompliant with FFMIA for fiscal year 2007, we 
identified problems reported by the auditors that affected agency 
systems' compliance with FFMIA. The problems identified in these 
reports are consistent with long-standing financial management 
weaknesses we have reported based on our work at a number of agencies. 
Further, we identified other GAO and IG reports that discussed 
financial management systems issues and analyzed and summarized the 
reports. In addition, we analyzed the results and information obtained 
from the recent Comptroller General's forum on improving the federal 
government's financial management systems.[Footnote 54] We also met 
with the Office of Management and Budget (OMB) officials to discuss 
their current efforts to improve federal financial management and 
address our prior recommendations related to FFMIA. In addition, we 
reviewed documentation provided by OMB regarding its current 
initiatives. 

We conducted this performance audit from December 2007 to September 
2008, in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

We requested comments on a draft of this report from the Director, 
Office of Management and Budget, or his designee. We received written 
comments from the Deputy Controller. OMB's comments are discussed in 
the Agency Comments and Our Evaluation section and reprinted in 
appendix VII. We also received technical comments from OMB, which we 
incorporated as appropriate. In addition, we provided relevant excerpts 
from a draft of this report to agencies specifically cited in the 
report. Several agencies provided technical comments which we 
incorporated as appropriate. 

[End of section] 

Appendix II: Requirements and Standards Supporting Federal Financial 
Management: 

Congress enacted the Federal Financial Management Improvement Act 
(FFMIA)[Footnote 55] in 1996 to obtain the benefits of effective 
financial management of the federal government that would flow from 
enforced implementation of three earlier 1990s financial management 
developments. First, the Chief Financial Officers (CFO) Act of 1990 
(CFO Act),[Footnote 56] as expanded by the Government Management Reform 
Act of 1994,[Footnote 57] initiated significant financial management 
reform at 24 major agencies by establishing a centralized agency 
financial management leadership structure and imposing financial 
discipline through required annual agencywide audited financial 
statements. Second, the Joint Financial Management Improvement Program 
(JFMIP)[Footnote 58] in 1995 issued revised Core Financial System 
Requirements, which set out the functional and technical requirements 
for an agency's core financial system.[Footnote 59] Third, the Federal 
Accounting Standards Advisory Board (FASAB), which was established in 
1990, had made significant progress after 6 years of work in developing 
the federal government's first set of comprehensive financial 
accounting standards and concepts[Footnote 60] designed to meet the 
needs of federal agencies and users of federal financial information. 
Moreover, FFMIA requires implementation of the U.S. Government Standard 
General Ledger (SGL). The SGL is intended to improve data stewardship 
throughout the federal government enabling consistent reporting at all 
levels within the agencies and providing comparable data and financial 
analysis governmentwide. Even with these improvements, the Senate 
Committee on Governmental Affairs, which considered the legislation 
resulting in FFMIA, stated that federal agencies' financial management 
systems were inadequate and could be improved by creating a means to 
use the audit process established by the CFO Act to assure that federal 
agencies would implement and maintain financial management systems that 
use the applicable federal financial management systems requirements 
and federal accounting standards.[Footnote 61] 

Federal Financial Management Systems Requirements: 

The policies and standards prescribed for executive agencies to follow 
in developing, operating, evaluating, and reporting on financial 
management systems are defined in the OMB Circular No. A-127, Financial 
Management Systems. The components of an integrated financial 
management system include the core financial system, managerial cost 
accounting system, administrative systems, and certain programmatic 
systems. Administrative systems are those that are common to all 
federal agency operations,[Footnote 62] and programmatic systems are 
those needed to fulfill an agency's mission. OMB Circular No. A-127 
refers to the series of publications entitled federal financial 
management systems requirements, initially issued by the Joint 
Financial Management Improvement Program's (JFMIP) Program Management 
Office as the primary source of governmentwide requirements for 
financial management systems. However, as of December 2004, the 
Financial Systems Integration Office (FSIO) assumed responsibility for 
coordinating the work related to federal financial management systems 
requirements and OMB's Office of Federal Financial Management (OFFM) is 
responsible for issuing the new or revised regulations. In December 
2004, the JFMIP Principals--the Comptroller General of the United 
States, the Secretary of the Treasury, and the Directors of OMB and the 
Office of Personnel Management--voted to modify the roles and 
responsibilities of JFMIP, resulting in the creation of FSIO. Appendix 
III lists the federal financial management systems requirements 
published to date. Figure 4 is the current model that illustrates how 
these systems interrelate in an agency's overall systems architecture. 

Figure 4: Agency Systems Architecture: 

This figure is a chart showing the agency systems architecture. 

[See PDF for image] 

Source: OMB. 

[End of figure] 

Federal Accounting Standards: 

FASAB[Footnote 63] promulgates federal accounting standards and 
concepts that agency chief financial officers use in developing 
financial management systems and preparing financial statements. FASAB 
develops the appropriate federal accounting standards and concepts 
after considering the financial and budgetary information needs of the 
Congress, executive agencies, and other users of federal financial 
information and comments from the public. FASAB forwards the standards 
and concepts to the Comptroller General, the Director of OMB, the 
Secretary of the Treasury, and the Director of the Congressional Budget 
Office for a 90-day review. If, within 90 days, neither the Comptroller 
General nor the Director of OMB objects to the standard or concept, 
then it is issued and becomes final. FASAB announces finalized concepts 
and standards in The Federal Register. 

The American Institute of Certified Public Accountants designated the 
federal accounting standards promulgated by FASAB as being generally 
accepted accounting principles for the federal government. This 
recognition enhances the acceptability of the standards, which form the 
foundation for preparing consistent and meaningful financial statements 
both for individual agencies and the government as a whole. Currently, 
there are 32 Statements of Federal Financial Accounting Standards 
(SFFAS) and 5 Statements of Federal Financial Accounting Concepts 
(SFFAC).[Footnote 64] The concepts and standards are the basis for 
OMB's guidance to agencies on the form and content of their financial 
statements and for the government's consolidated financial statements. 
Appendix IV lists the concepts, standards, interpretations,[Footnote 
65] and technical bulletins, along with their respective effective 
dates. 

FASAB's Accounting and Auditing Policy Committee (AAPC)[Footnote 66] 
assists in resolving issues related to the implementation of federal 
accounting standards. AAPC's efforts result in guidance for preparers 
and auditors of federal financial statements in connection with 
implementation of federal accounting standards. To date, AAPC has 
issued nine technical releases, which are listed in appendix V along 
with their release dates. 

U.S. Government Standard General Ledger (SGL): 

The SGL was established by an interagency task force under the 
direction of OMB and mandated for use by agencies in OMB and Treasury 
regulations in 1986. The SGL promotes consistency in financial 
transaction processing and reporting by providing a uniform chart of 
accounts and pro forma transactions used to standardize federal 
agencies' financial information accumulation and processing throughout 
the year, enhance financial control, and support budget and external 
reporting, including financial statement preparation. The SGL is 
intended to improve data stewardship throughout the federal government, 
enabling consistent reporting at all levels within the agencies and 
providing comparable data and financial analysis 
governmentwide.[Footnote 67] 

[End of section] 

Appendix III: Publications in the Federal Financial Management Systems 
Requirements Series: 

Federal financial management systems requirements (FFMSR) document: 
FFMSR-8 System Requirements for Managerial Cost Accounting; 
Issue date: February 1998. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-99-5 Human Resources & Payroll Systems Requirements; 
Issue date: April 1999. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-99-8 Direct Loan System Requirements; 
Issue date: June 1999. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-99-9 Travel System Requirements; 
Issue date: July 1999. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-99-14 Seized Property and Forfeited Assets Systems 
Requirements; 
Issue date: December 1999. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-00-01 Guaranteed Loan System Requirements; 
Issue date: March 2000. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-00-3 Grant Financial System Requirements; 
Issue date: June 2000. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-00-4 Property Management Systems Requirements; 
Issue date: October 2000. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-01-01 Benefit System Requirements; 
Issue date: September 2001. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-02-02 Acquisition/Financial Systems Interface Requirements; 
Issue date: June 2002. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-03-01 Revenue System Requirements; 
Issue date: January 2003. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-03-02 Inventory, Supplies and Materials System Requirements; 
Issue date: August 2003. 

Federal financial management systems requirements (FFMSR) document: 
JFMIP-SR-01-04 Framework for Federal Financial Management Systems; 
Issue date: April 2004. 

Federal financial management systems requirements (FFMSR) document: 
OFFM-NO-0106 Core Financial System Requirements; 
Issue date: January 2006. 

Federal financial management systems requirements (FFMSR) document: 
OFFM-NO-0206 Insurance System Requirements; 
Issue date: June 2006. 

Source: OMB's Office of Federal Financial Management (OFFM). 

Note: Effective December 1, 2004 all financial management system 
requirements documents and other guidance initially issued by the JFMIP 
were transferred to OFFM and remain in effect until modified. 

[End of table] 

[End of section] 

Appendix IV: Statements of Federal Financial Accounting Concepts, 
Standards, Interpretations, and Technical Bulletins: 

Concepts: SFFAC No. 1 Objectives of Federal Financial Reporting. 

Concepts: SFFAC No. 2 Entity and Display. 

Concepts: SFFAC No. 3 Management's Discussion and Analysis. 

Concepts: SFFAC No. 4 Intended Audience and Qualitative Characteristics 
for the Consolidated Financial Report of the United States Government. 

Concepts: SFFAC No. 5 Definitions of Elements and Basic Recognition 
Criteria for Accrual-Basis Financial Statements. 

Standards: SFFAS No. 1 Accounting for Selected Assets and Liabilities; 
Effective for fiscal year[A]: 1994. 

Standards: SFFAS No. 2 Accounting for Direct Loans and Loan Guarantees; 
Effective for fiscal year[A]: 1994. 

Standards: SFFAS No. 3 Accounting for Inventory and Related Property; 
Effective for fiscal year[A]: 1994. 

Standards: SFFAS No. 4 Managerial Cost Accounting Standards and 
Concepts; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 5 Accounting for Liabilities of the Federal 
Government; 
Effective for fiscal year[A]: 1997. 

Standards: SFFAS No. 6 Accounting for Property, Plant, and Equipment; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 7 Accounting for Revenue and Other Financing 
Sources and Concepts for Reconciling Budgetary and Financial 
Accounting; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 8 Supplementary Stewardship Reporting; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 9 Deferral of the Effective Date of Managerial 
Cost Accounting Standards for the Federal Government in SFFAS No. 4; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 10 Accounting for Internal Use Software; 
Effective for fiscal year[A]: 2001. 

Standards: SFFAS No. 11 Amendments to Accounting for Property, Plant, 
and Equipment- - Definitional Changes-Amending SFFAS 6 and SFFAS 8 
Accounting for Property, Plant, and Equipment and Supplementary 
Stewardship Reporting; 
Effective for fiscal year[A]: 1999. 

Standards: SFFAS No. 12 Recognition of Contingent Liabilities Arising 
from Litigation: An Amendment of SFFAS 5, Accounting for Liabilities of 
the Federal Government; 
Effective for fiscal year[A]: 1998. 

Standards: SFFAS No. 13 Deferral of Paragraph 65.2 - Material Revenue- 
Related Transactions Disclosures; 
Effective for fiscal year[A]: 1999. 

Standards: SFFAS No. 14 Amendments to Deferred Maintenance Reporting 
Amending SFFAS 6, Accounting for Property, Plant and Equipment and 
SFFAS 8, Supplementary Stewardship Reporting; 
Effective for fiscal year[A]: 1999. 

Standards: SFFAS No. 15 Management's Discussion and Analysis; 
Effective for fiscal year[A]: 2000. 

Standards: SFFAS No. 16 Amendments to Accounting for Property, Plant, 
and Equipment - Measurement and Reporting for Multi-Use Heritage 
Assets: Amending SFFAS 6 and SFFAS 8 Accounting for Property, Plant, 
and Equipment and Supplementary Stewardship Reporting; 
Effective for fiscal year[A]: 2000. 

Standards: SFFAS No. 17 Accounting for Social Insurance; 
Effective for fiscal year[A]: 2000. 

Standards: SFFAS No. 18 Amendments to Accounting Standards for Direct 
Loans and Loan Guarantees in Statement of Federal Financial Accounting 
Standards No. 2; 
Effective for fiscal year[A]: 2001. 

Standards: SFFAS No. 19 Technical Amendments to Accounting Standards 
for Direct Loans and Loan Guarantees in Statement of Federal Financial 
Accounting Standards No. 2; 
Effective for fiscal year[A]: 2003. 

Standards: SFFAS No. 20 Elimination of Certain Disclosures Related to 
Tax Revenue Transactions by the Internal Revenue Service, Customs, and 
Others, Amending SFFAS 7, Accounting for Revenue and Other Financing 
Sources; 
Effective for fiscal year[A]: 2001. 

Standards: SFFAS No. 21 Reporting Corrections of Errors and Changes in 
Accounting Principles, Amendment of SFFAS 7, Accounting for Revenue and 
Other Financing Sources; 
Effective for fiscal year[A]: 2002. 

Standards: SFFAS No. 22 Change in Certain Requirements for Reconciling 
Obligations and Net Cost of Operations, Amendment of SFFAS 7, 
Accounting for Revenue and Other Financing Sources; 
Effective for fiscal year[A]: 2001. 

Standards: SFFAS No. 23 Eliminating the Category National Defense 
Property, Plant, and Equipment; 
Effective for fiscal year[A]: 2003. 

Standards: SFFAS No. 24 Selected Standards for the Consolidated 
Financial Report of the United States Government; 
Effective for fiscal year[A]: 2002. 

Standards: SFFAS No. 25 Reclassification of Stewardship 
Responsibilities and Eliminating the Current Services Assessment; 
Effective for fiscal year[A]: 2003/2005. 

Standards: SFFAS No. 26 Presentation of Significant Assumptions for the 
Statement of Social Insurance: Amending SFFAS 25; 
Effective for fiscal year[A]: 2009. 

Standards: SFFAS No. 27 Identifying and Reporting Earmarked Funds; 
Effective for fiscal year[A]: 2006. 

Standards: SFFAS No. 28 Deferral of the Effective Date of 
Reclassification of the Statement of Social Insurance: Amending SFFAS 
25 and 26; 
Effective for fiscal year[A]: 2005. 

Standards: SFFAS No. 29 Heritage Assets and Stewardship Land; 
Effective for fiscal year[A]: 2006. 

Standards: SFFAS No. 30 Inter-Entity Cost Implementation Amending SFFAS 
4, Managerial Cost Accounting Standards and Concepts; 
Effective for fiscal year[A]: 2009. 

Standards: SFFAS No. 31 Accounting for Fiduciary Activities; 
Effective for fiscal year[A]: 2009. 

Standards: SFFAS No. 32 Consolidated Financial Report of the United 
States Government Requirements: Implementing Statement of Federal 
Financial Accounting Concepts 4 "Intended Audience and Qualitative 
Characteristics for the Consolidated Financial Report of the United 
States Government"; 
Effective for fiscal year[A]: 2006. 

Interpretations: No. 1 Reporting on Indian Trust Funds in General 
Purpose Financial Reports of the Department of the Interior and in the 
Consolidated Financial Statements of the United States Government: An 
Interpretation of SFFAS 7; 
Effective for fiscal year[A]: 1998. 

Interpretations: No. 2 Accounting for Treasury Judgment Fund 
Transactions: An Interpretation of SFFAS 4 and SFFAS 5; 
Effective for fiscal year[A]: 1997. 

Interpretations: No. 3 Measurement Date for Pension and Retirement 
Health Care Liabilities; 
Effective for fiscal year[A]: 1998. 

Interpretations: No. 4 Accounting for Pension Payments in Excess of 
Pension Expense; 
Effective for fiscal year[A]: 1998. 

Interpretations: No. 5 Recognition by Recipient Entities of Receivable 
Nonexchange Revenue: An Interpretation of SFFAS 7; 
Effective for fiscal year[A]: 1998. 

Interpretations: No. 6 Accounting for Imputed Intra-departmental Costs: 
An Interpretation of SFFAS No. 4; 
Effective for fiscal year[A]: 2005. 

Interpretations: No. 7 Items Held for Remanufacture; 
Effective for fiscal year[A]: 2007. 

Technical bulletins: TB 2000-1 Purpose and Scope of FASAB Technical 
Bulletins and Procedures for Issuance; 
Effective for fiscal year[A]: 2000. 

Technical bulletins: TB 2002-1 Assigning to Component Entities Costs 
and Liabilities that Result from Legal Claims Against the Federal 
Government; 
Effective for fiscal year[A]: 2002. 

Technical bulletins: TB 2002-2 Disclosures Required by Paragraph 79(g) 
of SFFAS 7 Accounting for Revenue and Other Financing Sources and 
Concepts for Reconciling Budgetary and Financial Accounting; 
Effective for fiscal year[A]: 2002. 

Technical bulletins: TB 2003-1 Certain Questions and Answers Related to 
the Homeland Security Act of 2002; 
Effective for fiscal year[A]: 2003. 

Technical bulletins: TB 2006-1 Recognition and Measurement of Asbestos-
Related Cleanup Costs; 
Effective for fiscal year[A]: 2010. 

Source: FASAB. 

[A] Effective dates do not apply to Statements of Federal Financial 
Accounting Concepts. 

[End of table] 

[End of section] 

Appendix V: Accounting and Auditing Policy Committee Technical 
Releases: 

Technical Release: TR-1 Audit Legal Representation Letter Guidance; 
Release date: March 1, 1998. 

Technical Release: TR-2 Determining Probable and Reasonably Estimable 
for Environmental Liabilities in the Federal Government; 
Release date: March 15, 1998. 

Technical Release: TR-3 Preparing and Auditing Direct Loan and Loan 
Guarantee Subsidies Under the Federal Credit Reform Act; 
Release date: July 31, 1999. 

Technical Release: TR-4 Reporting on Non-Valued Seized and Forfeited 
Property; 
Release date: July 31, 1999. 

Technical Release: TR-5 Implementation Guidance on SFFAS No. 10: 
Accounting for Internal Use Software; 
Release date: May 14, 2001. 

Technical Release: TR-6 Preparing Estimates for Direct Loan and Loan 
Guarantee Subsidies Under the Federal Credit Reform Act (Amendments to 
TR-3); 
Release date: January 2004. 

Technical Release: TR-7 Clarification of Standards Relating to the 
National Aeronautics and Space Administration's Space Exploration 
Equipment; 
Release date: May 25, 2007. 

Technical Release: TR-8 Clarification of Standards Relating to Inter- 
Entity Costs; 
Release date: February 20, 2008. 

Technical Release: TR-9 Implementation Guide for Statement of Federal 
Financial Accounting Standards 29: Heritage Assets and Stewardship 
Land; 
Release date: February 20, 2008. 

Source: FASAB. 

[End of table] 

[End of section] 

Appendix VI: Checklists for Reviewing Systems under the Federal 
Financial Management Improvement Act: 

Checklist: GAO/AIMD-00-21.2.3; 
Human Resources and Payroll Systems Requirements; 
Issue date: March 2000. 

Checklist: GAO-01-99G; 
Seized Property and Forfeited Assets Systems Requirements; 
Issue date: October 2000. 

Checklist: GAO/AIMD-21.2.6; 
Direct Loan System Requirements; 
Issue date: April 2000. 

Checklist: GAO/AIMD-21.2.8; 
Travel System Requirements; 
Issue date: May 2000. 

Checklist: GAO/AIMD-99-21; 
.2.9 System Requirements for Managerial Cost Accounting; 
Issue date: January 1999. 

Checklist: GAO-01-371G; 
Guaranteed Loan System Requirements; 
Issue date: March 2001. 

Checklist: GAO-01-911G; 
Grant Financial System Requirements; 
Issue date: September 2001. 

Checklist: GAO-02-171G; 
Property Management Systems Requirements; 
Issue date: December 2001. 

Checklist: GAO-04-22G; 
Benefit System Requirements; 
Issue date: October 2003. 

Checklist: GAO-04-650G; 
Acquisition/Financial Systems Interface Requirements; 
Issue date: June 2004. 

Checklist: GAO-05-225G; 
Core Financial System Requirements; 
Issue date: February 2005. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix VII: Comments from the Office of Management and Budget: 

Executive Office Of The President: 
Office Of Management And Budget: 
Washington, D.C. 20503: 

September  19, 2008: 

Ms. Kay Daly: 
Acting Director, Financial Management and Assurance: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Daly: 

Thank you for the opportunity to comment on the Government 
Accountability Office (GAO) draft report entitled "Persistent Financial 
Management Systems Issues Remain for Many CFO Act Agencies (GAO-08-
1018)." We appreciate GAO's careful review and agree with your 
assessment that federal agencies still need to improve their financial 
systems so that reliable, useful, and timely financial management 
information is available for decision making. While significant work 
remains, we also want acknowledge that agencies are continuing to make 
progress. Specifically, the number of noncompliances with the Federal 
Financial Management Improvement Act of 1996 (FFMIA) was reduced to 10 
from 12 over the previous year. Moreover, the number of disagreements 
between auditors and agencies over the FFMIA compliance results has 
declined to three from five compared to last year. 

We are continuing to work aggressively to assist agencies in building a 
strong foundation of financial management practices through OMB's 
financial management and systems oversight and under the Financial 
Management Line of Business (FMLoB) initiative. Both efforts support 
the goals of FFMIA to improve government-wide financial management and 
to facilitate timely and reliable information for day-to-day 
management. 

This past year, we began a significant re-write of OMB Circular No. A-
127, Financial Management Systems, as well as an update to OMB's 
implementation guidance for FFMIA. These materials will address prior 
GAO recommendations to clarify the definition of FFMIA substantial 
compliance so that auditors and agency heads interpret the guidance 
more consistently. 

As you noted in your report, there have been significant 
accomplishments this past year with regards to the FMLoB initiative. 
Specifically, we finalized the Common Government Accounting 
Classification structure and two major business process standards: 
funds control and payment management. For the upcoming fiscal year, we 
plan to continue that success by issuing additional business process 
standards, receivable and reporting, and will make substantial progress 
in developing a standard reimbursables process. The new standards will 
be added to the core financial system requirements and become the 
baseline that all agencies will follow when implementing their 
financial systems. 

Thank you again for the opportunity to review and provide comment on 
your draft report. 

Signed by: 

Danny Werfel: 
Deputy Controller: 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kay L. Daly, (202) 512-9095 or dalykl@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Michael S. LaForge, Assistant 
Director; F. Abe Dymond, Assistant General Counsel; Rosalinda 
Cobarrubias; Francine DelVecchio; Tiffany Epperson; Lauren S. Fassler; 
Jim Kernen; Sheila D. Miller; and Patrick Tobo made key contributions 
to this report. 

[End of section] 

Related GAO Products: 

Financial Management: Long-standing Financial Systems Weaknesses 
Present a Formidable Challenge. GAO-07-914. Washington, D.C.: August 3, 
2007. 

Federal Financial Management: Critical Accountability and Fiscal 
Stewardship Challenges Facing Our Nation. GAO-07-542T. Washington, 
D.C.: March 1, 2007. 

Financial Management: Improvements Under Way but Serious Financial 
Systems Problems Persist. GAO-06-970. Washington, D.C.: September 26, 
2006. 

Financial Management: Achieving FFMIA Compliance Continues to Challenge 
Agencies. GAO-05-881. Washington, D.C.: September 20, 2005. 

Financial Management: Improved Financial Systems Are Key to FFMIA 
Compliance. GAO-05-20. Washington, D.C.: October 1, 2004. 

Financial Management: Recurring Financial Systems Problems Hinder FFMIA 
Compliance. GAO-04-209T. Washington, D.C.: October 29, 2003. 

Financial Management: Sustained Efforts Needed to Achieve FFMIA 
Accountability. GAO-03-1062. Washington, D.C.: September 30, 2003. 

Financial Management: FFMIA Implementation Necessary to Achieve 
Accountability. GAO-03-31. Washington, D.C.: October 1, 2002. 

Financial Management: Effective Implementation of FFMIA Is Key to 
Providing Reliable, Useful, and Timely Data. GAO-02-791T. Washington, 
D.C.: June 6, 2002. 

Financial Management: FFMIA Implementation Critical for Federal 
Accountability. GAO-02-29. Washington, D.C.: October 1, 2001. 

Financial Management: Federal Financial Management Improvement Act 
Results for Fiscal Year 1999. GAO/AIMD-00-307. Washington, D.C.: 
September 29, 2000. 

Financial Management: Federal Financial Management Improvement Act 
Results for Fiscal Year 1998. GAO/AIMD-00-3. Washington, D.C.: October 
1, 1999. 

Financial Management: Federal Financial Management Improvement Act 
Results for Fiscal Year 1997. GAO/AIMD-98-268. Washington, D.C.: 
September 30, 1998. 

Financial Management: Implementation of the Federal Financial 
Management Improvement Act of 1996. GAO/AIMD-98-1. Washington, D.C.: 
October 1, 1997. 

[End of section] 

Footnotes: 

[1] GAO, Fiscal Stewardship: A Critical Challenge Facing Our Nation, 
GAO-07-362SP (Washington, D.C.: January 2007); Suggested Areas for 
Oversight for the 110th Congress, GAO-07-235R (Washington, D.C.: Nov. 
17, 2006); 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

[2] Federal Financial Management Improvement Act of 1996, Pub. L. No. 
104-208, div. A., § 101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 
30, 1996). 

[3] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

[4] The term financial management systems includes the financial 
systems and the financial portions of mixed systems necessary to 
support financial management, including automated and manual processes, 
procedures, controls, data, hardware, software, and support personnel 
dedicated to the operation and maintenance of system functions. 

[5] GAO, Highlights of a Forum Convened by the Comptroller General of 
the United States: Improving the Federal Government's Financial 
Management Systems, GAO-08-447SP (Washington D.C.: Apr. 16, 2008). 

[6] The five CFO Act agencies whose auditors no longer reported lack of 
substantial compliance with FFMIA requirements were the departments of 
Energy, the Interior, Justice, and Labor, and the Small Business 
Administration (SBA). The one agency that moved into noncompliance was 
the Environmental Protection Agency. 

[7] A "material weakness" is a significant deficiency or combination of 
significant deficiencies that results in more than a remote likelihood 
that a material misstatement of the financial statements will not be 
prevented or detected. 

[8] A "significant deficiency" is a control deficiency, or combination 
of deficiencies, that adversely affects the entity's ability to 
initiate, authorize, record, process, or report financial data 
reliability in accordance with generally accepted accounting principles 
such that there is more than a remote likelihood that a misstatement of 
the entity's financial statements that is more than inconsequential 
will not be prevented or detected. 

[9] S. Rep. No. 104-339, at 10 (July 30, 1996). 

[10] GAO, Financial Management: FFMIA Implementation Critical for 
Federal Accountability, GAO-02-29 (Washington, D.C.: Oct. 1, 2001) and 
GAO, Financial Management: FFMIA Implementation Necessary to Achieve 
Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002). 

[11] GAO, Financial Management Systems: Additional Efforts Needed to 
Address Key Causes of Modernization Failures, GAO-06-184 (Washington, 
D.C.: Mar. 15, 2006). 

[12] Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982) (codified at 31 
U.S.C. § 3512 (c), (d)). 

[13] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[14] Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993). 

[15] Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994). 

[16] Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996). 

[17] Pub. L. No. 107-289, 116 Stat. 2049 (Nov. 7, 2002) (codified at 31 
U.S.C. § 3515). The Accountability of Tax Dollars Act of 2002 extends 
the requirement to prepare and submit audited financial statements to 
most executive agencies not subject to the CFO Act unless they are 
exempted by OMB. However, these agencies are not required to have 
systems that are compliant with FFMIA requirements. 

[18] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). 

[19] Pub L. No. 107-347, title III, 116 Stat. 2946 (Dec. 17, 2002). 

[20] Pub. L. No. 108-330, 118 Stat. 1275 (Oct. 16, 2004). 

[21] In December 2004, the JFMIP Principals voted to modify the roles 
and responsibilities of the JFMIP, resulting in the creation of FSIO. 
FSIO assumed responsibility for coordinating the work related to 
federal financial management systems requirements and OMB's Office of 
Federal Financial Management (OFFM) is responsible for issuing the new 
or revised regulations. See OMB, Update on the Financial Management 
Line of Business and the Financial Systems Integration Office, 
memorandum (Washington, D.C.: Dec. 16, 2005). 

[22] The PCIE--which is governed by Executive Order No. 12805 of May 
11, 1992--was established to (1) address integrity, economy, and 
effectiveness issues that transcend individual government agencies and 
(2) increase the professionalism and effectiveness of inspectors 
general personnel throughout the government. The PCIE is composed 
primarily of the presidentially appointed inspectors general. Officials 
from OMB, the Federal Bureau of Investigation, Office of Government 
Ethics, Office of Special Counsel, and the Office of Personnel 
Management (OPM) serve on the PCIE as well. 

[23] GAO/PCIE, Financial Audit Manual, Volume 1, GAO-08-585G 
(Washington D.C.: July 2008) and GAO/PCIE, Financial Audit Manual, 
Volume 2, GAO-08-586G (Washington D.C.: July 2008). 

[24] GAO-08-447SP. 

[25] GAO-02-29, GAO-03-31. 

[26] The term mixed system means an information system that supports 
both financial and nonfinancial functions of the federal government or 
components thereof. 

[27] Departments of Energy, the Interior, Justice, and Labor, and the 
Small Business Administration. 

[28] See, for example, GAO-02-29 and GAO, Financial Management: Long- 
standing Financial Systems Weaknesses Present a Formidable Challenge, 
GAO-07-914 (Washington, D.C.: Aug. 3, 2007). 

[29] Auditors provide "negative assurance" when they state that nothing 
came to their attention during the course of their planned procedures 
to indicate that the agency's financial management systems did not meet 
FFMIA requirements. Under generally accepted government auditing 
standards, there are no requirements to perform additional testing 
beyond that needed for a financial statement audit for an auditor to 
give negative assurance. Testing that is not sufficient to support an 
opinion means that an area of noncompliance may be missed. In contrast, 
providing positive assurance of FFMIA compliance requires auditors to 
perform more audit procedures than those needed to render an opinion on 
the financial statements. 

[30] GAO-02-29. 

[31] OMB, Revised Implementation Guidance for the Federal Financial 
Management Improvement Act, memorandum (Washington, D.C.: Jan. 4, 
2001). 

[32] U.S. Department of Justice, Office of the Inspector General, U.S. 
Department of Justice Annual Financial Statement Fiscal Year 2007 
Commentary and Summary, Audit Report 08-01 (Washington, D.C.: December 
2007). 

[33] U.S. Department of Justice Office of the Inspector General, Top 
Management and Performance Challenges in the Department of Justice, 
memorandum (Washington, D.C.: 2007). 

[34] See, for example, GAO-07-914. 

[35] GAO-02-29. 

[36] See, for example, GAO-02-29 and GAO-07-914. 

[37] S. Rep. No. 104-339, at 10 (July 30, 1996). 

[38] GAO, Financial Management Systems: Lack of Disciplined Processes 
Puts Implementation of HHS' Financial System at Risk, GAO-04-1008 
(Washington, D.C.: Sept. 23, 2004). 

[39] GAO-06-184. 

[40] Disciplined processes have been shown to reduce the risks 
associated with software development and acquisition efforts to 
acceptable levels and are fundamental to successful system 
implementations. Examples of some of the disciplined processes include 
requirements management, testing, risk management, data conversion, and 
project management. 

[41] GAO, DOD Business Transformation: Lack of an Integrated Strategy 
Puts the Army's Asset Visibility System Investments at Risk, GAO-07-860 
(Washington, D.C.: July 27, 2007). 

[42] Field/Tactical refers to Army units that are deployable to 
locations around the world such as Iraq and Afghanistan. 

[43] GAO-04-1008. 

[44] Department of Health and Human Services, FY 2007 Agency Financial 
Report (Washington, D.C.: Nov. 15, 2007). 

[45] GAO, Homeland Security: Departmentwide Integrated Financial 
Management Systems Remain a Challenge, GAO-07-536 (Washington, D.C.: 
June 21, 2007). 

[46] Department of Homeland Security Office of Inspector General, 
Letter Report: Review of DHS' Financial Systems Consolidation Project, 
OIG-08-47 (Washington, D.C.: May 9, 2008). 

[47] See Savantage Financial Services, Inc. v. United States, 81 Fed. 
Cl. 300, 308 (2008): see also Competition in Contracting Act, codified, 
in part, as amended, at 41 U.S.C. § 253 (a). 

[48] 81 Fed. Cl. 300, 311. 

[49] According to OMB, the goals of the FMLOB initiative are to (1) 
provide timely and accurate data for decision making; (2) facilitate 
stronger internal controls that ensure integrity in accounting and 
other stewardship activities; (3) reduce costs by providing a 
competitive alternative for agencies to acquire, develop, implement, 
and operate financial management systems through shared service 
solutions; (4) standardize systems, business processes, and data 
elements; and (5) provide for seamless data exchange between and among 
federal agencies by implementing a common language and structure for 
financial information and system interfaces. 

[50] GAO-06-184. 

[51] OMB, Update on the Financial Management Line of Business, 
memorandum (Washington, D.C.: Jan. 28, 2008). 

[52] FSIO, Financial Management Systems Standard Business Processes for 
U.S. Government Agencies (Washington, D.C.: July 18, 2008). This 
document presents governmentwide common processes and activities, 
standard business rules, and data exchanges for core financial business 
processes. It contains detailed descriptions of the funds and payment 
management processes and indicates that the receivables management, 
reimbursables, and reporting processes will be presented at a future 
date. 

[53] OMB, Budget of the United States Government Fiscal Year 2009, 
Analytical Perspectives, Supplemental Materials, Table 9-9 (Washington, 
D.C.: Feb. 4, 2008). 

[54] GAO, Highlights of a Forum Convened by the Comptroller General of 
the United States: Improving the Federal Government's Financial 
Management Systems, GAO-08-447SP (Washington D.C.: Apr. 16, 2008). 

[55] Federal Financial Management Improvement Act of 1996, Pub. L. No. 
104-208, div. A., § 101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 
30, 1996). 

[56] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

[57] Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994). 

[58] JFMIP was originally formed under the authority of the Budget and 
Accounting Procedures Act of 1950 and was a joint and cooperative 
undertaking of GAO, the Department of the Treasury, the Office of 
Management and Budget (OMB), and the Office of Personnel Management 
(OPM), working in cooperation with each other to improve financial 
management practices in the federal government. As a result of a 
realignment that OMB announced in December 2004, JFMIP's 
responsibilities for financial management policy and oversight in the 
federal government were transferred to OMB's Office of Federal 
Financial Management (OFFM). Although JFMIP no longer exists as a 
separate organization, its four Principals--the Comptroller General of 
the United States, the Secretary of the Treasury, and the Directors of 
OMB and OPM--continue to meet at their discretion. 

[59] Core financial system capabilities, as defined by OFFM, include 
managing general ledger, funding, payments, receivables, and certain 
basic cost functions. 

[60] Accounting standards are authoritative statements of how 
particular types of transactions and other events should be reflected 
in financial statements, while accounting concepts explain the 
objectives and ideas upon which the standards were developed. 

[61] S. Rep. No. 104-339, at 1-13 (July 30, 1996). 

[62] Examples of administrative systems include budget, acquisition, 
travel, property, and human resources and payroll. 

[63] In October 1990, the Secretary of the Treasury, the Director of 
OMB, and the Comptroller General established FASAB to develop a set of 
generally accepted accounting standards and concepts for the federal 
government. Effective October 1, 2003, FASAB is comprised of six 
nonfederal or public members, one member from the Congressional Budget 
Office, and the three sponsors. 

[64] Accounting standards are authoritative statements of how 
particular types of transactions and other events should be reflected 
in financial statements. SFFACs explain the objectives and ideas upon 
which FASAB develops the standards. 

[65] An interpretation is a document of narrow scope that provides 
clarifications of original meaning, additional definitions, or other 
guidance pertaining to an existing federal accounting standard. 

[66] In 1997, FASAB, in conjunction with OMB, Treasury, GAO, the Chief 
Financial Officers Council, and the President's Council on Integrity 
and Efficiency, established AAPC to assist the federal government in 
improving financial reporting. 

[67] SGL guidance is published in the Treasury Financial Manual. 
Treasury's Financial Management Service is responsible for maintaining 
the SGL and answering agency inquiries. 

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