The Honorable Linda M. Springer
Controller, Office of Federal Financial Management
Office of Management and Budget
Subcommittee on Government Efficiency and Financial Management
Committee on Government Reform
United States House of Representatives
I am honored
to testify for the first time as the Controller at the Office of Management
and Budget (OMB) before this subcommittee. I feel today as I have many
times before reporting to the Audit Committee of corporate Boards of Directors.
As I did in those meetings, I am here to provide you with a response by
management to the issues presented in the auditor's report on the Federal
Government's consolidated financial statements for the fiscal years ended
September 30, 2002 and 2001.
Accounting Office (GAO) has issued a disclaimer of opinion on the consolidated
financial statements for these periods. In so doing, material weaknesses
were noted in the following areas:
Property, Plant, and Equipment and Inventories and Related Property
Liabilities and Commitments and Contingencies
of Government Operations and Disbursement Activity
for and Reconciliation of Intragovernmental Activity and Balances; and
of Consolidated Financial Statements.
source of weakness in the first three areas is the Department of Defense.
Items 4 and 5 are process impediments that have government-wide impact.
identified the following material weaknesses in internal control throughout
the Executive Branch:
Receivable and Loan Guarantee Liabilities
- Tax Collection
with GAO that these are areas of weakness. We are not satisfied with this
result. In fact, we believe that even unqualified audit opinions and the
absence of material weaknesses do not necessarily indicate the presence
of first class financial management. First class financial management
requires integration of the financial impact of agency activities in operational
execution and senior management decision making, accompanied by accountability
standard setting, performance tracking and other analyses. These are among
the characteristics we should seek in government every bit as much as
they are expected in the private sector. And these are the objectives
of the Improved Financial Performance Initiative of the President's Management
is making a concerted effort to address the weaknesses identified by GAO
and agency Inspectors General and independent auditors. For example, we
are working to identify the root causes and current status of, as well
as action plans to remedy, the deficiencies at the Department of Defense
(DOD). Some of these actions will be near term. Others will take longer
and will be dependent on the new financial management systems implementation.
OMB has reviewed with DOD its assessment and plans for each area identified
by GAO. Our most recent update was just last week at planning sessions
we have initiated with every CFO Act agency's CFO and IG. These meetings
are the first of what will be an ongoing review of plans to meet the financial
reporting objectives of achieving unqualified audit opinions, eliminating
material weaknesses, and meeting accelerated reporting deadlines.
In our judgment,
DOD is identifying its problems and is engaged in both short and long
term remediation activities. This should substantially address the first
three material weaknesses. OMB will continue to monitor this progress
with both the department and its IG.
intragovernmental transactions, we have new rules in place that govern
the manner in which agencies record intragovernmental transactions. Simply
put, these rules once and for all standardize the government-wide processing
and recording of intragovernmental activity. This, in conjunction with
the automated process by which we will compile the government-wide financial
statements in the near future, will go a long way toward resolution of
the other material weaknesses that contribute to the disclaimer of opinion
by the auditors.
As you have
heard at the recent testimony on the President's Management Agenda, notable
progress was made in Fiscal Year 2002 in agency financial reporting. This
year a record number of the government's major departments and agencies
received unqualified opinions on their annual audited financial statements
- 21 of 24 - up from 18 in Fiscal Year 2001. Two agencies - Treasury and
the Social Security Administration - met the new government-wide standard
for timeliness of reliable financial information two years early. In addition
to DOD, only the Small Business Administration (SBA) and the U.S. Agency
for International Development (USAID) are keeping us from our goal of
unqualified audit opinions on the financial statements of the major departments
and agencies. I met with the DOD Comptroller just last week to assess
the department's status. I am meeting with officials from USAID on April
16th and SBA on May 1st to begin regular updates on their progress in
both getting a clean audit opinion and meeting the President's accelerated
financial reporting deadline. I want to note for the subcommittee that
USAID received an unqualified opinion for 4 of its 5 principal financial
statements and a qualified opinion on the fifth statement.
Part of the
President's Improved Financial Performance Initiative is our effort to
reduce erroneous payments. While GAO in the past had tallied just $20
billion in erroneous payments, OMB reported to the Congress last year
that our effort, which requires erroneous payment estimates for major
benefit programs that make payments in excess of $1.2 trillion annually,
has raised the total estimate of erroneous payments to $35 billion annually.
We are expanding our efforts in this area with the implementation of the
Improper Payments Information Act of 2002, which originated in this subcommittee.
This act requires an estimate of the extent of erroneous payments from
all federal programs. Program-wide erroneous payment estimates can only
help stem the loss to the federal government in waste, fraud, and abuse-too
much of which is taking place without an accounting. But our erroneous
payment efforts are not just about estimates. The President's FY 2004
budget includes a $100 million increase to clarify Earned Income Tax Credit
(EITC) rules and to help ensure only eligible taxpayers receive payments.
This investment could help us reduce the more than $9 billion in erroneous
EITC payments we make annually. The Administration has also proposed a
number of common sense proposals to give agencies tools they can use to
verify the eligibility of applicants for Student Financial Assistance,
housing subsidies, and unemployment insurance. These provisions, if enacted,
could save us billions of dollars over time.
Mr. Chairman, I would be derelict not to mention one of the great challenges
before us. The migration of the component agencies to the new Department
of Homeland Security will present a major challenge from a financial management
perspective. Disparate systems at different stages of implementation is
just one of many complicating issues that the new Department presents.
I plan to work closely with Under Secretary Hale to meet these challenges.
GAO, has highlighted many of our weaknesses. I will not pass up the opportunity
to highlight some of the favorable assertions made in GAO's report about
the efforts the Bush Administration is making to improve financial management
throughout the government.
government, financial management improvement initiatives are under way
that, if effectively implemented, have the potential to appreciably
improve the quality of the federal government's financial management
and reporting. A number of federal agencies have started to make progress
in their efforts to modernize their financial management systems and
improve financial management performance as called for in the President's
President's Management Agenda includes improved financial performance
as one of the top five governmentwide management goals . . . This is
a step in the right direction to improving management and performance.
we are paying to improving financial performance and the progress we have
made thus far move us down the playing field, but still short of the goal
line. It is important that we not lose sight of these achievements, however.
Even though no score appears on the board until we've crossed the line,
we have moved inside the red zone and the goal is in sight. This administration
is committed, with the help of this subcommittee, to achieving the first
class financial management of which we and the American people can be