Federal financial report reveals ongoing reliability gaps

Agencies continue to struggle with major weaknesses in financial reporting in the first year that they have had to account for internal controls, the Treasury Department said in its fiscal 2006 Financial Report of the U.S. Government.

All major agencies improved financial management by meeting the accelerated Nov. 15 deadline for their financial reports and complied with new requirements to report on their assessment of internal controls over financial reporting under Office of Management and Budget's Circular A-123.

Of the major agencies, 18 received clean audit opinions this year, while auditors said the information from five agencies was unreliable. These were the Defense, Energy, Homeland Security and State departments, and NASA. The Transportation Department earned a qualified opinion because it had serious weaknesses.

The next scorecard, rating agency performance under the President's Management Agenda for the period ending Dec. 31, will reflect findings from the government's financial report, the report said. For example, several agency audit opinions and internal controls declined during the 2006 fiscal year.

OMB will work with the Chief Financial Officers Council over the coming year to identify potential areas for more guidance and to share best practices that agencies found helpful, the report said. OMB also will continue to incorporate key milestones from agencies' plans for this year's assessment into the improved financial performance category of the PMA scorecard to ensure that agencies meet their goals.

'Federal agencies continue to show their resolve to implement rigorous corrective action plans to reduce material process, systems and control weakness,' said the report released Friday.

Improved financial business practices, management systems and reporting tools assist agencies in the timeliness, accuracy and reliability of financial information, which better accounts for their use of federal dollars.

Most agencies have improved their IT management, which helps make effective use of the federal government's $65 billion annual IT investment. For example, agencies certified and accredited 88 percent of their IT systems, up from 85 percent the previous year. In addition, about 83 percent of agencies have an effective enterprise architecture, which helps ensure that IT investments support agency goals and do not duplicate governmentwide IT investments.

Treasury cited advances in e-government service delivery with GovBenefits.gov, a one-stop resource for government benefits which has expanded assistance information to include links to some state programs, and Grants.gov, which hosts information about all federal grant programs on its site. Grantees submitted 86,000 applications through the site compared with 16,000 the previous year.

The Grants Management Line of Business will further improve grants management by providing the technical capability for agencies to process their grants in a decentralized way using common business processes.

Another agency challenge is implementing certified financial management systems successfully. The Financial Management Line of Business will help agencies meet federal standards through use of shared services. Many FMLOB initiatives are under way, including standardizing financial processes across government, promoting the use of shared-services providers to support many customers and increasing transparency by establishing performance measure to evaluate results.

OMB in the fall issued guidance for agencies to migrate to shared-services providers and a draft of standard governmentwide accounting classifications.

In an accompanying report, the Government Accountability Office said that a significant number of material weaknesses related to financial systems, recordkeeping and financial reporting, and that incomplete documentation continued to prevent it from giving an opinion on the government's consolidated financial statement, as has been the case since 1997. Major problems include the government's inability to:

  • Determine Defense Department property, equipment and inventories

  • Support major portions of operations cost, especially at DOD

  • Account for and reconcile transactions between agencies

  • Provide adequate systems and personnel to address the magnitude of fiscal 2006 financial reporting challenges, including further development of Treasury's Governmentwide Financial Report System.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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