Feds still fumbling with financial management systems

Many agencies still have not fulfilled a federal requirement to develop financial management systems that meet accounting standards, according to a report the Government Accountability Office released on Wednesday.

Comment on this article in The Forum.In fiscal 2007, 13 of the 24 largest agencies had yet to meet the requirements of the 1996 Federal Financial Management Improvement Act, which requires them to deploy financial management systems that comply with federal accounting standards and are compatible with other accounting systems governmentwide, according to the report.

That's still an improvement from fiscal 2006, when 17 agencies failed to comply with the law. But the report's authors worry that this occurred primarily because of varying interpretations of the definition "substantial compliance," rather than actual improvements in the systems themselves. Too many agencies are using the guidance included in the financial law as a checklist, rather than determining if their financial management program meets the expectations of Congress and the needs of the agency, the report stated.

"The modernization of federal financial management systems has been a long-standing challenge at many federal agencies," the report noted. "For agencies to achieve . . . 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."

Among the agencies singled out for problems with developing financial management systems were the Defense, Health and Human Services, and Homeland Security departments. The report said their modernization efforts have been "hampered by agencies not following disciplined processes."

For example, the report criticized the Army's $5 billion investment in its General Fund Enterprise Business System and Logistics Modernization Program because the project was not aligned with the service's enterprise architecture and did not make use of best practices in program management, such as independent validation or verification or economic analysis to support management decisions.

HHS' Unified Financial Management System also was singled out for not following disciplined processes. Auditors at HHS reported that serious financial system issues resulted from conversion problems, such as having to manually enter into the system 800 financial transactions totaling more than $170 billion. In addition, more than $1 billion in transactions were inappropriately posted. The report also called the agency's process for compiling financial statements "cumbersome."

In addition, the report noted that 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, leading to a ruling from the U.S. Court of Federal Claims that the department's sole-source award was a violation of procurement policy. DHS currently is revisiting its strategy for consolidating financial systems.

The report called for financial management officials to shift their focus from meeting compliance requirements to "comprehending and meeting program managers' financial information requirements."

"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" the law," the report stated.

GAO did not recommend what agencies should do to improve development, but said it was working with the Office of Management and Budget to help provide them with the guidance needed to ensure improvements in financial management systems.