Archive

Improving Financial Management

ADOPT GOOD BUSINESS PRACTICES

FM09: SIMPLIFY THE FINANCIAL REPORTING PROCESS

BACKGROUND

Federal financial reporting requirements need to be reviewed and consolidated, and the amount and type of information requested needs to be changed or eliminated.

Over the years, legislation and regulations have been developed to improve financial management in federal agencies. For example, in 1982 the Federal Managers Financial Integrity Act (FMFIA) was passed to ensure that managers review internal controls. In 1990, the Chief Financial Officers (CFO) Act was passed; among other things, it requires federal agencies to have their financial statements audited. Each new piece of legislation and regulation has required additional, separate reports from agencies to the President, Congress, or to a central agency like the Office of Management and Budget (OMB). The following table lists the current reporting requirements and their due dates.

These independently prepared reports do not give an integrated perspective of an agency's performance of its mission or its financial practices. Additionally, although federal managers spend much of their time providing multiple reports to central agencies, those agencies--as well as federal managers and Congress--often indicate that they are not receiving the information they need.

AGENCY REPORTING REQUIREMENTS

 Sample Format:
 (Source)
 (Reporting Requirement)
 (Report Due Date)

Inspector General Act IG and Management Reports (OMB Circular A-50) Nov. 30/May 31

Inspector General Act Amendments of 1988 Federal Entity Audit Coverage Oct. 31

Federal Managers' Financial Integrity Act FMFIA Report (OMB Circular A-123) Dec. 31

OMB policy based on FMFIA High Risk Report July/Dec. 31

Prompt Pay Act Prompt Payment Report (OMB Circular A-125) Nov. 30

Federal Civil Penalties Inflation Report Adjustment Act of 1990 Civil Monetary Penalty Jan. 31

Single Audit Act Single Audit Report to Congress May 1

Accounting and Auditing Act of 1950 CFO Act Five-Year Plan Aug. 31

OMB Circular A-11 Budget Exhibits on Financial Management Activities and High Risk Sept. 1

CFO Act Financial Statements Mar. 31

U.S. Code Title 31 Section 9106 Annual Report Aug. 31

OMB Circular A-127 Financial Systems Plan Aug. 31

Government Performance and Results Act of 1993 To be developed To be determined

NEED FOR CHANGE

Federal financial requirements need to be reviewed and consolidated, and the amount and type of information requested needs to be changed or eliminated. These actions will help provide a complete picture of an agency's performance and financial accountability in meeting its mission.

Examples of duplicative or overly detailed reporting requirements abound in the present system of "single issue" reports:

--The FMFIA requires each agency to prepare a report to determine if its accounting system conforms to the principles, standards, and related requirements prescribed by the Comptroller General.[Endnote 1] The CFO Act requires that 10 pilot agencies have their accounting system controls evaluated by independent auditors as part of the process of preparing audited financial statements. [Endnote 2] Agency reviews of accounting systems should not be necessary for those agencies that have audited financial statements to the extent they duplicate the previous scope.

--The Prompt Payment Report requires over 40 pieces of information, ranging from the number and dollar value of invoices and a description of progress made, to problems identified and corrective actions taken in agency vendor payment systems during the year. [Endnote 3] The focus of the Prompt Payment Report should be only on total dollars and the amount of interest paid.

--Agencies identify and report on high-risk areas and material weaknesses as part of their annual FMFIA report. Until 1992, OMB encouraged the inclusion of detailed corrective action plans; it now offers an alternative reporting format that focuses on key milestones. Agencies that used the alternative format increased the readability and significantly reduced the size of their reports. Additional economies could be realized by providing a statement on each weakness and summarizing the results achieved rather than providing detailed corrective action plans.

Financial reports should provide certain information to enable the reviewer to make policy and management decisions. The various reports could be combined and consolidated into two reports, one with planning information, one with accountability information.

A report that contains planning information could be submitted during the annual budget submission and would include:

--information on the overall management health of the agency, including the agency's ability to meet mission requirements and program goals, plans to improve the agency's mission and management, and the budget necessary to achieve the improvements;

--how resources are allocated to the programs within the agency; and

--performance measures and standards for evaluation.

An accountability report would be provided after the close of the fiscal year on the overall performance of the organization and would include:

--information on the agency's financial condition and whether the disclosures help indicate if program managers are properly carrying out the programs entrusted to them;

--assurance that controls were adequate to protect resources and that desired outcomes were achieved;

--assurance that the agency met or exceeded established measures or standards; and

--supplemental information on such things as prompt payment and credit management.

ACTIONS

1. Propose legislation to permit OMB, in consultation with appropriate congressional committees, to have the flexibility to consolidate and simplify statutory reports to Congress and the President. (3)

Legislation should be enacted to modify the reporting dates and consolidate overlapping content of the various financial reports currently required.

2. Require agency heads to provide two reports annually, a planning report and an accountability report. (3)

Agency heads should be required to provide two annual agency reports, one on planning and one on accountability. These reports would consolidate the single issue reports required at present. The dates for the planning report and the accountability report would be determined by OMB. These reports should be at a summary level and some cost analysis performed as to the need for the data collected. OMB should accept audited financial statements as meeting the reporting requirements of Section 4 of the FMFIA; Section 2 reporting could be handled as one of the summary reports. OMB should also review reports such as the Prompt Payment Report and reduce the amount of data collected and focus on the significant issues.

3. Ensure that any future financial management reporting requirements be addressed in either the planning or accountability reports. (2)

The Director of OMB should work with Congress to ensure that any future reporting requirements can be simplified and incorporated into one of the two reports.

CROSS-REFERENCES TO OTHER NPR ACCOMPANYING REPORTS

Streamlining Management Control, SMC02: Streamline the Internal Controls Program to Make it an Efficient and Effective Management Tool; SMC06: Reduce the Burden of Congressionally Mandated Reports; and SMC09: Expand the Use of Waivers to Encourage Innovation.

ENDNOTES

1. Federal Managers' Financial Integrity Act of 1982, section 4.

2. The Chief Financial Officers Act (November 15, 1990), Section 303.

3. OMB Circular A-125, "Prompt Pay."

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