Government-wide Financial Reporting - AGA

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Appendix A: Summary of Important Actions Leading to the Current Consolidated Financial Statements of the U.S. Government The journey to the CFS began in 1950 with the enactment of the Budget and Accounting Procedures Act (BAPA). 25 In the Treasury Financial Manual (TFM), Part 2, Chapter 1000, 26 the following citation appears: “Per the Budget and Accounting Procedures Act of 1950, Treasury must render overall Government financial reports to the President, the Congress, and the public. Per this Act, each agency must provide the Secretary of Treasury (The Secretary) with reports and information relating to the agency’s financial condition and operations as the Secretary may require for effective performance. The Secretary’s responsibilities include the system of central accounting and financial reporting for the Government.” President Harry Truman, who signed BAPA into law, expressed his thoughts on the legislation: 27 “The accounting and auditing provision [of BAPA] lay the foundation for far-reaching improvements and simplification. For the first time, clear-cut legislation is provided which nails down responsibility for accounting, auditing, and financial reporting in the Government. … A sound system of accounting in each agency, appropriately integrated for the Government as a whole, is fundamental to responsible and efficient administration in the Government.” While BAPA resulted in important improvements, its promise was not fully realized until subsequent financial management reform legislation more than 30 years later. This legislation revitalized the focus on financial management and financial reporting and included a requirement to prepare the CFS and have it audited by GAO. The first major event in the reform of federal government financial management was the Federal Managers’ Financial Improvement Act of 1982 (FMFIA). 28 Under the FMFIA, for the first time, federal government agency heads were required to submit a report on the status of internal controls that ensure, for example, that: “… obligations and costs are in accordance with applicable law … funds, property and other assets are safeguarded against waste, loss, unauthorized use or misappropriation … revenues and expenditures are properly recorded …” If the agency head believed there were internal control issues, which could range from physical security of buildings to computer systems operations to accounting accuracy, FMFIA required a report of these weaknesses and actions to address the problems. Initial reporting commenced for fiscal year 1983, with such annual reports due 90 days after that fiscal year end and annually thereafter. In February 1985, GAO issued a comprehensive two-volume report, Managing the Cost of Government — Building an Effective Financial Management Structure. 29 This report, which established a conceptual framework for improving federal government financial reporting, controls and systems, laid the foundation for the passage of the landmark CFO Act of 1990. It opened with an 1802 quote from Thomas Jefferson: “I think it an objective of great importance … to simplify our system of finance and to bring it within the comprehension of every member of Congress … the whole system has been involved in impenetrable fog. There is a point … on which I should wish to keep my eye … a simplification of the form of accounts … so as to bring everything to a single centre; we might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress, and every man of any mind in the Union, should be able to comprehend them to investigate abuses, and consequently to control them.” Since the 1990 passage of the CFO 24 AGA Corporate Partner Advisory Group Research
Appendix A Act, much has been accomplished to move the federal government’s financial operations and reporting closer to Jefferson’s vision. Widely heralded as the most comprehensive financial management improvement in 40 years, the CFO Act ushered in a new era of federal government accountability. It significantly changed the landscape for the federal government agency CFO, moving the role far beyond basic accounting responsibilities to that of agency leader in providing support across a range of critical programs and operations. 30 But one achievement that remains elusive is the ability to prepare consolidated financial statements for the federal government as a whole that can obtain a “clean” auditors’ opinion from GAO. Among a range of requirements to reform federal government financial management practices and capabilities, the CFO Act required 10 selected federal government agencies to prepare audited financial statements beginning with fiscal year 1992. In commenting on the requirement for audited agency financial statements, GAO provided the following insight: “Most importantly, the act requires that financial statements be prepared and audited. … Together, these features of the CFO Act will improve the reliability and usefulness of Agency financial information.” 31 The requirement for audited agency financial statements was later made permanent and expanded to all 24 CFO Act agencies with the enactment of the Government Management Reform Act of 1994 (GMRA) 32 and expanded even further to other federal government agencies with the Accountability of Tax Dollars Act of 2002 (ATDA). 33 The GMRA also included a requirement for Treasury to prepare auditable CFS for the federal government beginning in fiscal year 1997. Preparing the CFS was not new for Treasury, which was at the forefront of producing prototype statements beginning in 1973. 34 Treasury continued to prepare prototype CFS until the 1994 requirements of the GMRA mandated Treasury’s preparation and GAO’s audit. The CFO Act laid the foundation for a series of ensuing management reforms and legislation built on the concepts of improved accountability and better management practices. For example, we have witnessed the enactment of the Federal Financial Management Improvement Act of 1996 (FFMIA) 35 and its focus on improving financial management systems, which are at the heart of the CFO Act. Similarly, the Government Performance and Results Act of 1993 (GPRA) mandated reporting on actual results agencies achieved. 36 The Improper Payments Information Act of 2002 (IPIA) 37 and the Improper Payments Elimination and Recovery Act of 2010 (IPERA) 38 have spearheaded the war against improper payments. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) 39 and the American Recovery and Reinvestment Act of 2009 (ARRA) 40 have opened the door for unprecedented accountability and transparency over federal government spending and have spawned additional systems, controls, reporting regimens and oversight mechanisms. There has been important related information technology legislation, such as the Clinger-Cohen Act of 1996, 41 the Government Information Security Reform Act of 2000 (GISRA) 42 and the Federal Information Security Management Act of 2002 (FISMA). 43 Over the past two decades, with the implementation of the CFO Act and the GMRA, significant change has been realized in how financial management is viewed in the federal government. Now considered an essential component of agency management, financial management helps ensure accountability and provides valuable information and enhanced internal controls. Today, the CFO leadership structure is focused on the issues and considers the future much more broadly than it did even five years ago. The CFO Council, established by the CFO Act, undertakes a variety of initiatives and has provided a forum to address issues on a government-wide basis. Government-wide Financial Reporting 25
Page 1 and 2: Corporate Partner Research Advisory
Page 3 and 4: Table of Contents Executive Summary
Page 5 and 6: Executive Summary SUMMARY OF RECOMM
Page 7 and 8: Introduction sound system of accoun
Page 9 and 10: 2. Breakdowns in the Compilation Pr
Page 11 and 12: Breakdowns in the Compilation Proce
Page 17 and 18: 3. Usefulness of the Two CFS Reconc
Page 19 and 20: 4. Structure Overview of the As-Is
Page 21 and 22: Structure to establish an organizat
Page 23: Structure and accountability. Stand
Page 27 and 28: Appendix B: Clarification on Data F
Page 29 and 30: Appendix C In two instances, the st
Page 31 and 32: Appendix C Interviews with Federal
Page 33 and 34: Appendix D: Abbreviations and Acron
Page 35 and 36: Appendix E: AGA Treasury Review Sco
Page 37 and 38: Endnotes 1. Treasury’s process co
Page 39 and 40: AGA CPAG Research Reports No. 1, Ma

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