Financial management woes plague agencies

Two agencies may be on the road toward finally having workable financial management systems, but the Pentagon has a long — and expensive — way to go before it can balance its books, officials said at congressional hearings last week.

The Defense and Agriculture departments and the U.S. Agency for International Development received failing grades in Rep. Stephen Horn's February report card on the status of agency financial management.

"The failures of a few agencies continue to tarnish the overall record of the executive branch," said Horn (R-Calif.), chairman of the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee. The panel held hearings May 8 on financial management problems at the three agencies.

Although financial management is often treated as a bookkeeping exercise, experts say agencies need complete and timely financial data to make good management decisions and prevent fraud, waste and abuse.

Both USAID and Agriculture are implementing new financial management systems that might give them auditable books within a few years, officials said.

After years of problems with its New Management System, USAID in December began using a new system, known as Phoenix, at its Washington, D.C., headquarters. It is not yet in use at the agency's 70 overseas posts.

Meanwhile, the USDA is in the final stages of replacing its Central Accounting System, although officials acknowledged that CAS problems will still hinder the fiscal 2001 audit results.

"This system is so inherently flawed that it cooks its own books," said Agriculture Inspector General Roger Viadero.

The agency is replacing CAS with the Foundation Financial Information System, which will address many of the long-standing problems identified by Viadero's office, said Patricia Healy, the USDA's acting chief financial officer.

The problems at DOD, however, are more entrenched, and because of the agency's size, fixes are critical to the government's overall effort to balance its books. "DOD's financial man-age-ment deficiencies, taken together, continue to represent the single largest obstacle to achieving an unqualified opinion on the U.S. government's consolidated financial statements," said Gregory Kutz, the General Accounting Office's director for DOD, State Department and NASA financial management, in a statement prepared for the hearing.

"The level of frustration is high," said Robert Lieberman, DOD's deputy IG. He said the Pentagon would have to spend at least $32 billion to have financial systems that are compliant with accounting standards. The actual cost could be considerably higher, he said.

Financial management reform is a top priority for Defense Secretary Donald Rumsfeld, said Lawrence Lanzillotta, DOD's principal deputy and deputy undersecretary for management reform.

"We have world-class armed forces," he said. "We intend to achieve world-class financial management."