GAO highlights messy books

Eleven major federal agencies aren't as financially healthy as auditors originally thought, U.S. Comptroller General David Walker said this week.

Nine major federal agencies that received unqualified auditor opinions for their year-end fiscal 2003 financial statements have since had to issue restatements, and auditors for two other agencies withdrew their previously unqualified opinion on the accuracy of agency financial books. The range of inaccuracies ranged from several million dollars to almost $1 billion, according to a Government Accountability Office report.

"When somebody has restated financial statements, that means that they didn't deserve a clean opinion," Walker said Feb. 9 during testimony before the House Government Reform Committee's on Government Management, Finance, and Accountability subcommittee. Seven of the nine ended up with an unqualified auditor opinion on their fiscal 2003 statements. Walker suggested that a change to Generally Accepted Accounting Principles might be needed so that it's always clear when auditors compel restatements.

Walker added that restatements should count against agencies in the quarterly President's Management Agenda score card, which includes agency financial management performance.

Agency chief financial officers testifying before the committee said the fiscal 2003 restatements don't indicate a larger trend. "As we get our arms around internal control issues, we will see a steady decline," said Jack Martin, the Education Department CFO.

The restatements came as auditors matched agencies' statements of budgetary resources -- a balance sheet of inlays and outlays, including intergovernment transfers -- and compared it with year-end financial reports.

Greater transparency on money transactions between different parts of the federal government will be relatively easy, said Donald Hammond, the Treasury Department's fiscal assistant secretary. Keeping track of transferred spending authority will be a much more difficult task, he said.

Strengthening internal controls will be one of the subcommittee's agenda items, said subcommittee chairman, Rep. Todd Platts (R-Pa.). Office of Management and Budget officials' recent decision to require agencies to strengthen their internal financial controls is a step in the right direction but may not go far enough, he said.

Under the revised OMB Circular A-123, audits of internal controls are not mandatory. "This year will be maybe an information-gathering year to see how OMB's new circular is implemented and what the results of that implementation are," he said. Platts sponsored a law making internal control audits mandatory for the Homeland Security Department, although he said he does not want to expand it across the entire federal government.

"We do not envision making controls mandatory for every agency or department. Perhaps some," he said. Possible candidates include the Defense Department and the Medicare program, Platts added.

Walker concurred that mandatory audits on Pentagon financial controls "is something that you would want to do," although for now, "you wouldn't achieve much by telling them they have to get an audit on their internal controls because they can't even get an opinion on their financial systems."

During the hearing, Martin also said the Education Department will lessen its reliance on private-sector contractors to conduct financial audits.

"Our people are just as good on paper or better than the contractor staff," Martin said. Education civil servants "should be able to produce the financial statement without significant contractor intervention."