By Michael O’Connell
@moconnellWFED
Web Editor
Federal News Radio

(Updated: 01/06/12, 6:00 p.m.) to include interview with Gary Engel, director of financial management and assurance issues at GAO)

The federal government’s consolidated financial report for 2011 is out and the picture isn’t pretty. The Government Accountability Office found once again that it can’t render an opinion on that statement. That’s despite the fact that several departments received their own clean financial statements.

“There are still some challenges in preparing the government-wide financial statements,” said Robert Dacey, GAO’s chief accountant. “Although GAO was again prevented from expressing an opinion on the federal government’s accrual based financial statements, there have been improvements at the agency level.” He spoke with The Federal Drive with Tom Temin Wednesday morning.

Starting in 1996, when the first CFO Act audits were required, only six agencies received unqualified opinions on their financial statements. At that time, agencies had five months to prepare their financial statements. Since then, the Office of Management & Budget has moved up reporting to Nov. 15, which gives agencies about 45 days to prepare their statements.

Improved financial reporting

In Fiscal Year 2011, 20 of the 24 individual CFO Act agencies received unqualified opinion on all of their financial statements, Dacey said. One agency received an unqualified opinion on all of its statements with the exception of its statements on social insurance and changes of social insurance. Another agency received a qualified opinion.

“The Department of Homeland Security reached a significant milestone in 2011, when it received a qualified opinion on its balance sheet and statement of custodial activity,” Dacey said. “Its remaining statements weren’t audited. Nonetheless, DHS plans to expand the audit in the future to all of its statements and ultimately plans to receive a clean opinion on all of them.”

Dacey outlined the three main obstacles to GAO giving an opinion on the accrual based financial statements.

1. Serious financial problems at the Department of Defense have prevented its statements from being auditable.
2. The federal government has been unable to adequately account for and reconcile intergovernmental activity and balances between agencies.
3. The federal government has an ineffective process for preparing consolidated financial statements.

Defense aims for clean audit.

The Department of Defense has set a 2017 deadline for it to achieve a clean audit. Dacey confirmed that DoD has made progress toward meeting that goal.

“The Department of Defense has pervasive and long-standing weaknesses in financial management and related business operations and systems,” he said. “To address those weaknesses, the department has developed its financial improvement and audit and readiness plan, or FIAR plan, that defines the department’s strategy, priorities and methodology for improving its financial management.”

In addition, DoD developed a FIAR plan guidance document in 2010 that spells out a methodology for the department’s components to develop financial improvement plans to help them achieve audit readiness.

“They are taking a number of steps and they’ve indicated that they are definitely dedicated to improving their financial management in the future,” Dacey said.

Tracking intergovernmental transactions

“It’s important to properly report intergovernmental transactions, because if two agencies don’t report the transactions between themselves in the same year and for the same amount, there’s going to be an error in the financial statements,” Dacey said.

Also, to prepare consolidated financial statements, those intergovernmental transactions need to be identified so that they can be subtracted or eliminated.

“Over the years, Treasury and OMB have taken a number of steps,” Dacey said. “In the past year specifically, Treasury has expanded its monitoring and outreach efforts of its focus groups that included quarterly analysis and ongoing collaboration with the entities to resolve various intergovernmental differences.” OMB and Treasury also plan to develop government-wide systems to improve intergovernmental transactions data.

“I think it’s really a collective effort of all of the players, both OMB and Treasury, CFOs, as well as inspector generals and their auditors to keep working on these issues,” Dacey said.

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