of The Honorable Linda M. Springer
Controller, Office of Federal Financial Management
Office of Management and Budget
Subcommittee on Financial Management, the Budget, and
Committee on Governmental Affairs
United States Senate
July 8, 2004
The Federal Governments 2003 Financial Statement:
Improving Accountability of American Taxpayers Dollars
Mr. Chairman and Members of the Subcommittee.
I am happy to be with you today to discuss the Financial Report of the
United States Government (the Financial Report) for fiscal year (FY)
2003 and other related financial management issues. I look forward to sharing
with you some of the significant progress made by Federal agencies during
the past year that underlies the Financial Report and positions us for the
Accomplishments and Progress
In the area
of Federal financial reporting, there were several notable agency accomplishments
in the past fiscal year. For instance, during fiscal 2003,
While we are pleased with the above achievements made by agencies during
the past fiscal year, we are not satisfied. Much work remains to be done
such as attaining unqualified audit opinions and resolving all material
weaknesses at agencies. Additionally, and just as important, we must raise
agencies to the level of first class financial management practices, where
financial performance information is used in day-to-day decision making.
Although we are not yet there, agencies are moving in the right direction
and are positioning themselves to reach their goals.
a record 18 of the 24 (75%) major agencies and departments completed
their Performance and Accountability Reports (PARs) by the end of December,
compared to only two agencies in fiscal year 2002;
of the above 18 agencies, eight accelerated the submission of their
PARs to mid-November of 2003, a year ahead of the 2004 requirement,
all with unqualified audit opinions;
20 of the 23 Chief Financial Officer (CFO) Act agencies received an
unqualified opinion on their financial statements;
agencies completed quarterly financial statements for the first time
the Department of Homeland Security (DHS), created five months into
the fiscal year, elected to forgo its first-year waiver and prepare
audited financial statements;
DHS received a qualified opinion on its Balance Sheet and Custodial
the United States Agency for International Development (USAID) received
an unqualified opinion on all of its audited financial statements for
the first time in its history and met the mid-November reporting date;
the Department of Defenses (DoD) Medicare-Eligible Retiree Health
Care Fund financial statements received a qualified opinion in its first
year and the National Reconnaissance Office received an unqualified
opinion on its statements;
the Small Business Administration (SBA) developed or significantly revised
credit models for five of its financial assistance programs during the
course of the year;
the total number of material weaknesses reported by auditors was reduced
by 18% in 2003;
the total number of Federal Managers Financial Integrity Act
(FMFIA) material weaknesses was reduced by 38% in 2003;
new financial management systems went live in many agencies, including
four between the close of the fiscal year and the end of December.
Opinion and Material Weaknesses
The General Accounting Office (GAO) issued a disclaimer of opinion on the
2003 Financial Report. In making this determination, GAO continued to identify
three main impediments to rendering an opinion: financial management problems
at the Department of Defense (DoD), deficiencies in accounting for intragovernmental
transactions, and ineffective processes for preparing the consolidated financial
statements. The Office of Management and Budget (OMB) concurs with these
observations. Efforts have been underway this fiscal year to address these
issues as noted in the auditors report.
Getting an opinion, qualified initially, on the government-wide financial
statements remains our goal. OMB is working closely with the Department
of the Treasury (Treasury) to create a closer link between audited agency
financial statements and the government-wide statements reflected in the
Financial Report. Beginning with fiscal year 2004, a new process will be
implemented to better align the agency statements with the government-wide
Weaknesses at DoD are being addressed. Progress is being made, but it is
important to recognize that long-standing issues in a department having
over 300 sub-entities are not easily remediated. In many cases, elimination
of DoD material weaknesses is dependent upon the new financial management
systems implementation. OMB meets periodically with both the DoD CFO and
its Inspector General (IG) to review plans for each area of concern and
to monitor progress.
The inability to balance significant amounts of intragovernmental transactions
is being addressed on several fronts by OMB and Treasury. Process enhancements,
such as more frequent reporting and reconciliation, and new tools will support
our efforts to eliminate reporting errors.
report comments on timeliness issues at the agency level that impacted
its audit scope. It should be understood that this was the direct result
of variations in the degree to which agencies were able to accelerate
from the official 2003 fiscal year reporting date of January 30, 2004.
Moving forward from this transitional year, we will turn to the single
Performance and Accountability Report due date of November 15.
The mandatory financial reporting date of November 15 will require much
work from the agencies this fiscal year. However, this accelerated deadline
is certainly an attainable goal, as shown by the large number of major agencies
(75%) that were able to report their financial statements by the end of
December last year. In those cases, strong agency senior leadership, careful
planning, innovative thinking, and focused efforts were all necessary elements
This fiscal year, we are regularly meeting with the CFO Offices of all major
agencies as they work toward the mandatory November deadline. Clearly, some
agencies have more obstacles and challenges to overcome than others. However,
all agencies are expected to take the necessary steps for meeting the accelerated
date. Some best practices being implemented by agencies include:
We look forward
to continuing to work with the agency CFOs in meeting the November 15
financial reporting deadline.
processes and audit schedule;
Aggressive tracking and resolving risk areas;
Reengineering of financial reporting and audit processes;
Early and frequent communication with auditors; and
Focused financial management priorities.
2003 fiscal year, the Federal Accounting Standards Advisory Board (FASAB)
issued Statement of Federal Financial Accounting Standard (SFFAS) No.
25, Reclassification of Stewardship Responsibilities and Eliminating the
Current Services Assessment. Among the provisions of this standard is
the requirement that the Statement of Social Insurance, which is currently
reported in the stewardship section of the Financial Report, become a
basic financial statement with full audit scrutiny. This Statement provides
estimates for important components of the Social Security and Medicare
programs and is accompanied by an expansive discussion of underlying assumptions
and sensitivity analyses. This requirement will enhance the significance
and the prominence of what is one of the most extensively presented components
of the current Financial Report.
control environment of any entity is an area of focus for both management
as well as its auditor. The agencies of the Federal Government are no
exception. There are several existing laws governing the agencies in assessing
and representing the quality of their internal control. For example, agency
heads are required to provide reasonable assurance of compliance with
the Federal Managers Financial Integrity Act (FMFIA) with respect
to both management control and financial management systems. Agency heads
are also required to certify that their systems satisfy specified requirements
under the Federal Financial Management Improvement Act (FFMIA). Additionally,
the Federal Information Security Management Act (FISMA) provides for government-wide
management and oversight of information security risks and agency information
security programs. As such, FISMA requirements provide an additional standard
for financial systems control.
Not all Federal
agencies are able to provide these assurances; however, all continue to
make progress in eliminating barriers to compliance. Because financial
systems are a major part of the universe to which these statutes apply,
it is entirely possible that positive assurance from the collective group
of agencies will emerge over a period of years due to the time required
for new system design, development and implementation.
and the CFO Council are keenly aware of the internal control challenges
and related new assurance requirements that have been reported in the
private sector. We are actively engaged with the Inspector General community
in reviewing these requirements and their potential applicability to Federal
Council and Committees
has been made through the OMB partnership with the CFO Council over the
past fiscal year. Consisting of the CFOs and Deputy CFOs of the 23 major
Federal departments and agencies, the Council recently reassessed its
working committees, as well as refreshed and updated its targeted focus.
Existing committees such as the Financial Reporting Acceleration and Improper
Payments Committees have been, and continue to be, very influential in
providing forums for sharing best practices and influencing OMB guidance.
New committees, such as the Financial Management Policies and Practices
group, are actively engaged in studying emerging issues. CFO Council Committees
will continue to partner with representatives of other groups, such as
the Presidents Council on Integrity and Efficiency (PCIE) and the
Chief Information Officers (CIO) Council.
Let me first
say that eliminating improper payments by the Federal Government has been,
and continues to be, a major management focus of this Administration.
It is our goal to ensure that every dollar spent by the Federal Government
is a dollar that is spent wisely and for the purpose for which it is intended.
Given the Federal Governments current budget in excess of $2 trillion
annually and the many important competing priorities and programs, our
mission is more important now than ever before.
it is our job to make certain that government agencies review their payments
and assess whether a risk of improper payment exists. If such a risk does
exist, then corrective action must be taken to ensure that the improper
payment does not occur again. We anticipate that ongoing agency efforts
will ultimately lead to a review of every single dollar that the government
spends to ensure that taxpayer money is spent for the purpose for which
it was intended.
Presidents Management Agenda (PMA) was first announced in 2001,
the elimination of improper payments has been a key component of the Improved
Financial Performance initiative. Initially, the effort to eliminate improper
payments focused on Federal agencies having programs making annual payments
in excess of $2 billion. These agencies were directed to follow the necessary
requirements set out in Section 57 of OMB Circular A-11 and report on
the programs in their annual budget submissions. Collectively, the Section
57 programs comprised about $1 trillion in government spending
nearly half of all annual government expenditures. We estimate that improper
payments exceed $35 billion a year out of the $1 trillion in spending
by these programs.
Improper Payments Information Act of 2002 (IPIA or the Act) was passed,
we appreciated the Congress concurrence with our concern and its
efforts to create a review process that would identify and eliminate erroneous
payments throughout all major Federal programs and activities. In May
of 2003, OMB issued guidance to agencies regarding how to go about complying
with the requirements of the new law. As part of IPIA implementation,
Federal agencies have established specific milestones to: 1) develop program
inventories; 2) perform risk assessments to determine which programs are
risk susceptible; 3) statistically sample those programs determined to
be high risk; 4) create corrective action plans; and 5) establish baseline
error rates and improvement targets for future reporting.
In the last
year, we have met with the Offices of the CFO and the IG at each major
agency, on more than one occasion, to ensure that the plans to meet the
requirements of the IPIA are being developed and implemented. At these
meetings, we finalized the agency plans to comply with the IPIA and directed
the agencies to set specific target dates for completing the required
steps to ensure that results are achieved on a timely basis. We now have
specific dates in which the key milestones are expected to be completed,
and we will track each agencys progress in meeting these deadlines
over the course of the coming months.
are required to report their activities relating to the elimination of
improper payments in their 2004 PARs, which are to be issued this November.
During these next five months and beyond, we will be working with the
agencies to make certain that progress is made, target dates are met,
milestones are completed, and results are achieved.
for the Future
for improving the quality and timeliness of financial reporting to the
American citizen is positive. Many challenges remain, but others that
appeared similarly insurmountable just a few years ago are being solved.
For example, who would have thought that the Administrations goal
of shortening the time for agencies to prepare audited financial statements
from five months to 45 days after the end of the year would be attained
by a third of the major agencies a year in advance of the deadline?
It is often
said that such achievements can only be accomplished by heroic efforts.
Hard work is always a factor, but these results are a tribute to detailed
planning, effective management and excellent execution.
acceleration targets are critical, they are not our ultimate objective.
The discipline and improved control needed to accelerate financial reports
are only the foundation for ensuring the availability of useful financial
information. The incorporation of timely and accurate financial information
into management decision-making and operational assessment continues to
be our main goal. Progress toward this goal was made during fiscal year
2003, as shown by the addition of two agencies (the Environmental Protection
Agency and the Social Security Administration) that achieved green status
under the PMA Improved Financial Performance initiative. They were joined
by the Department of Education in the first quarter of fiscal 2004.
forward to continued execution of our role in leading the Federal financial
management community and reporting additional progress across the financial
management spectrum to you in the months ahead.
it is my opinion that the Federal Government should be held to as high,
if not higher, a standard of financial management as the private sector.
American citizens do not have the option of taking their business
elsewhere they cannot elect to stop new investments (tax payments)
until the company (Federal Government) improves its financial management
practices. Accordingly, I believe it is incumbent upon every financial
professional in the government to execute his or her duties according
to the standards of excellence consistent with this stewardship responsibility.
That is what we strive to do. And that is what we will continue to do.
for listening. I am happy to entertain your questions.