Welcome to Luca!globe
Federal Government Accountability Current Issue!    Navigation Tips!
Main Menu
CPA Journal
Professional Libary
Professional Forums
Member Services




By Sid R. Ewer

In Brief

Legislation Provides Accountability

In the 1990s, Congress passed four major pieces of legislation intended to improve accountability in the Federal government. The Chief Financial Officers Act requires that each executive department and agency establish and fill a CFO position and consolidate its accounting, budgeting, and financial activities under the CFO.

The Government Performance and Results Act is designed to build on the CFO act, but in this case focusing on program effectiveness and efficiency. The Government Management Reform Act calls for department and agencies to submit annual audited financial reports, culminating in the submission by March 31, 1998 of an audited financial statement of the entire
executive branch of the U.S. government. The recently passed Federal Financial Management Improvement Act of 1996 continues the reformation

Fiscal accountability for the Federal government is on its way. A major unanswered question is the extent to which the independent public accountant will become involved. While the third act calls for audited financials, it leaves open the possibility of the inspectors general of the agencies and perhaps the GAO doing some if not most of the audit work.

In the past, financial statements for Federal agencies were rarely prepared. When prepared, they were rarely audited. If audited, they rarely received a clean opinion. Moreover, Federal departments and agencies tend to design their own accounting and financial reporting systems that prevent effective comparisons of their operations and also impede the preparation of reliable government-wide financial statements. (The terms departments and agencies are used interchangeably in this article.) Even a reliable financial report for a Federal operation is not the useful instrument it is for a commercial enterprise measuring an owner's wealth enhancement and organizational

If a publicly held corporation kept its financial records in the way Federal agencies have in the past and produced the same unreliable financial reports, the executives might be hauled away to jail. What its regulatory agencies prohibit in corporate financial reporting, the Federal government has practiced all too consistently in its own operational reporting.

Congress finally came to terms with inconsistent procedures in fiscal reporting of Federal agency operations.

To improve the usefulness of operational reporting of agency activities, Congress approved four major pieces of legislation in the 1990s that address accountability of Federal operations:

* The Chief Financial Officers Act (CFOA) of 1990

* The Government Performance and Results Act (GPRA) of 1993

* The Government Management Reform Act (GMRA) of 1994

* The Federal Fianancial Management Improvement Act (FMIA) of 1996

Pre-1990 Legislation

Federal government accounting emanates from the 1950 Budget and Accounting Procedures Act, which amended the 1921 Budget and Accounting Act. Several minor amendments to these acts occurred throughout the years, but they were not, in general, the result of concerns over runaway costs and mounting budget deficits.

In 1978 Congress approved the Inspector General Act (IGA). The IGA addressed inefficiency in government operations and created independent audit units within specified departments and agencies. Inspectors general conduct or supervise audits and investigations of programs and operations of their departments or agencies.

In 1982, Congress passed the Federal Managers' Financial Integrity Act (FMFIA). While the Budget and Accounting Procedures Act of 1950 places responsibility for establishing and maintaining adequate systems of accounting and internal control upon the head of each executive agency, the FMFIA provided for monitoring of these systems by requiring annual evaluations and reports to Congress.

Neither the IGA nor the FMFIA have the potential of impacting financial reporting as do the acts introduced in the 1990s. The provisions of these acts may, if implemented, revolutionize the way Federal government operations are evaluated.

Chief Financial Officers Act
of 1990

The CFOA established within the executive branch's Office of Management and Budget (OMB) an Office of Federal Financial Management (OFFM) headed by a controller. The act requires a chief financial officer in each executive department and agency, and sets competency standards for them. It is not that the Federal government has never had competent financial staff. But rather, tight financial control over agency operations and coordination of fiscal matters governmentwide have not received the priority they deserve. The act requires that each department and agency consolidate its accounting, budgeting, and financial management activities under the CFO. Among other duties, the CFO is responsible for the development and maintenance of an "integrated agency accounting and financial management system, including financial reporting and internal controls, which complies with applicable accounting principles, standards,
and requirements, and internal control standards."

Under the CFOA, departments and agencies must provide systems of accounting and internal controls under the direction of OMB's OFFM. It requires that departments and agencies produce audited financial statements. The audits may be performed by their inspectors general; otherwise any qualified and independent source, including a CPA firm, may perform the audits. Not later than 60 days after the audit report is received by the agency, the CFO submits to the agency head a report to accompany the audit that describes the status of the agency's financial management.

Government Performance and Results Act of 1993

If a business does not perform effectively, the result will be its demise. If a business does not perform efficiently (minimize costs), at best it will experience losses or at worst go out of business. This dynamic of the marketplace does not work as well with most government operations. The GPRA focuses more on operational effectiveness and efficiency than on financial control. It was designed to work hand-in-hand with the CFO Act and the GMRA. Congress's purpose in enacting the legislation was to limit waste and inefficiency in Federal programs by--

setting program goals, measuring program performance against those goals, and reporting publicly on their progress [and] improve congressional decision making by providing more objective information on... effectiveness and efficiency...

The GPRA requires performance plans expressed, in general, in quantitative form with descriptions of the resources necessary for carrying out plans. The act requires the performance plan to be a part of the budget submitted to Congress. It also calls for annual reporting of results and allows this reporting to be done in conjunction with annual financial reporting.

The GPRA contains a longer lead time for full implementation than does either the CFOA or the GMRA. The act sets timetables for agency implementation, and it contains provisions for pilot
projects and reporting by the OMB and the GAO.

Agency Requirements. No later than September 30, 1997, agencies are to submit to OMB strategic operating plans covering at least five years forward for their program activities. The plans should include, among other items--

* a mission statement of each agency's major functions and operations,

* the general goals and objectives,
including outcomes, for the major

* how the goals and objectives are to be achieved, and

* what factors can significantly affect achievement of the goals.

Beginning with fiscal year 1999, GPRA requires agencies to prepare, with their annual budget, performance plans in which goals and objectives are expressed quantitatively unless OMB approves non-quantitative measures for the agency. The act instructs agencies to relate these performance goals to the general goals of their strategic plans. Agencies may also include in their performance plans, requests to increase agency operating flexibility by proposing to trade restrictions in staffing levels, remuneration limits, and budget categories in return for agreeing to greater accountability in meeting performance goals. By March 31, 2000, agencies will report to Congress and the President on program performance, comparing actual performance with performance goals.

Pilot Projects and Oversight by OMB and GAO. Beginning October 1, 1993, a minimum of 10 agencies undertook as pilot projects the preparation of performance plans and program performance for one or more of their major functions and operations. OMB will assess the results of these pilot projects no later than May 1, 1997. On October 1, 1997, pilot projects will begin on performance budgeting involving at least five agencies and lasting two fiscal years. OMB will assess the results of these pilot projects on March 31, 2001. Although the OMB will coordinate most of the implementation of GPRA, the GAO will report to Congress on the implementation of GPRA and the prospects of agency ability to fully comply with it.

The accompanying table depicts the timelines related to the implementation of the GPRA, as well as other legislation described in this article.

Government Management
Reform Act of 1994

The CFOA, although extensive in its application, did not call for audited financial statements of departments' and agencies' entire operations. The GMRA of 1994 filled in this missing gap. This legislation serves several purposes. Of particular interest to this article is Title IV, section 405. Section 405(a) extends audit requirements to "all accounts and associated activities of each office, bureau, and activity of the agency." Section 405(f) requires that--not later than March 1 of 1995 and 1996 ...each executive agency...designated by...OMB...shall prepare and submit to [OMB] an audited financial statement for the preceding fiscal year, covering all accounts and associated activities of each office, bureau, and activity of the agency [or department].

By 1997 all executive departments and agencies identified in the CFO Act of 1990, not just those designated by OMB, will be required to submit comprehensive audited financial reports. In the meantime, according to OMB's 1995 Federal Financial Management Status Report & Five-Year Plan, agencywide reporting and audits of all operating units have begun as pilot projects involving eight different departments and agencies. While other CFO Act agencies and departments have started submitting audited reports of many of their operations, it is not yet for all their operations nor on an agencywide basis. By March 31, 1998, the GMRA calls for an audited financial statement for the preceding year for the entire executive branch of the U.S. Government.

Federal Financial Management Improvement Act of 1996 (FMIA)

Building on the CFOA Act of 1990, the GPRA, and the GMRA, the FMIA of 1996 encourages department and agency development of a uniform Federal accounting system. It calls for a system that follows the standards laid down by the Federal Accounting Standards Advisory Board (FASAB). FMIA of 1996 also requires agencies to adhere to a U.S. Government standard general ledger to ensure consistency in accounting and financial reporting across the Federal government organization.

The FMIA makes the development of a uniform accounting system a priority in resources provided by federal entities for its various functions. When push comes to shove, executive heads of agencies have, in the past, felt the pressure to emphasize the delivery of program services at the expense of their administration. Beginning October 1, 1996, however, agency heads are required to provide the financial resources necessary to effect competent financial management systems. Failure to have effective financial management control systems that comply with FMIA will become a part of the annual audit report and will also be reported to Congress by OMB in its annual Federal Financial Management Status Report.

The FMIA of 1996 was originally introduced in Congress in August 1995, as the Accounting Standardization Act of 1995 by Senator Hank Brown (R) of Colorado. Sentor Brown is the only CPA in the U.S. Senate and one of the very few CPAs ever to sit in either house of the U.S. Congress. As originally introduced, the bill provided for eventual agency budgetary reductions, if agencies failed to comply with the requirements of the act.

The final legislation removes the budgetary penalties but does require, whenever the audit is prepared, the reporting of names of agency officials responsible for financial management systems that have been found not to comply with the legislation. Knowing and willful disregard of the requirements of FMIA may bring repercussions to responsible agency officials, including removal from office. Finally, unlike previous legislation concerning Federal financial control that rarely or never mentions the legislative or judicial branches of the Federal government, this legislation offers an additional facet. By no later than October 1, 1997, both the Congress and the Supreme Court of the United States must have studies and report on how they may also achieve compliance with the provisions of the FMIA of 1996.

Progress in Implementing the

In its latest Federal Financial Management Status Report and Five-Year Plan, OMB cites a number of improvements that have been made to Federal financial management because of the acts. For example, Treasury has implemented a system to collect agency standard general ledger account balances and has also enhanced its governmentwide cash disbursement reporting system. Participation by departments and agencies in GPRA pilot projects have exceeded Congress's minimum requirements. According to the General Accounting Office June 27, 1995, testimony to Congress in Managing for Results: Status of the Government Performance and Results Act, 71 different pilot projects of major functions and operations are taking place.

As an indirect result of the CFOA, the Federal Accounting Standards Advisory Board (FASAB) was created to recommend accounting principles for Federal government accounting. FASAB has issued two concepts statements and eight financial accounting standards as shown in the accompanying exhibit. In addition FASAB recently issued an overview document (see sidebar on page 25).

As of June, 1996, out of 152 fiscal year 1995 financial statements that were prepared, 109 were to receive audits. Of the 109 planned audits, 86 had been completed as of June 12, 1996, and 65% of these had received clean opinions. The 65% represents an improvement over the previous years, when in FY 1994, 1993, and 1992 the percentages of clean opinions were 53%, 46%, and 41% respectively.

Much improvement is still needed in agency accounting operations. Obviously all financial reports should be audited, and all should receive clean opinions.

In addition, if a governmentwide audit report is to be prepared by 1998, as envisioned by the GMRA, agency accounting and financial control systems need more standardization. OMB reports that agencies currently operate 820 financial management systems. Agencies have initiated attempts to upgrade their systems for governmentwide compatibility; but OMB notes that many agencies lack funds to complete improvements. Of course, under the FMIA of 1996, agencies are required to put a priority on upgrading their systems. *

Sid R. Ewer, PhD, CPA, is an associate professor of accountancy at Southwest Missouri State University, Springfield, MO.


The Federal Accounting Standards Advisory Board (FASAB) recently issued a report dated December 31, 1996, Overview of Federal Accounting Concepts and Standards (as of September 30, 1996). The report contains a brief preface and a summary of each of the board's pronouncements issued to date. A copy of the report is available for downloading from FinanceNet on the Internet at http://www.financenet.gov. A limited number of paper copies are available from the FASAB at 750 First Street, NE, Room 1001, Washington DC 20002. Their telephone number is (202) 512-7350 and fax is (202) 512-7366. The reason for issuing the report and some background information on the board is contained in the following excerpts from the introductory letter of Elmer B. Staats, Chairman.

Federal Accounting Standards Advisory Board, Washington D.C.

We have prepared this overview to help agency managers and other interested parties understand the kinds of financial information that will be available under new reporting concepts and accounting standards developed by the Federal Accounting Standards Advisory Board (FASAB).

FASAB was established in October 1990 by the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), and the Comptroller General to consider and recommend accounting principles for the Federal government. The nine-member board is composed of representatives from the three principals, one Congressional Budget Office representative, one representative from the defense and international agencies, one representative from civilian agencies, and three representatives from the private sector.

FASAB recommends accounting standards after considering the financial and budgetary information needs of the Congress, executive agencies, other users of Federal financial information, and comments from the public. Treasury, OMB, and the General Accounting Office (GAO) then decide whether to adopt the recommended standards; if they do, the standards are published by OMB and GAO and become effective.

Using a due process and consensus building approach, the board and the FASAB staff have provided the Federal government with a set of comprehensive accounting standards. The dedication of all FASAB members and staff has contributed greatly to this landmark achievement, and we commend the important contribution they have made to improve Federal accounting and financial reporting.

The new reporting concepts and accounting standards that have resulted are central to effectively meeting the financial management improvement goals of the Chief Financial Officers (CFO) Act of 1990, as amended. Also, improved financial information is necessary to support the strategic planning and performance measurement requirements of the Government Performance and Results Act (GPRA) of 1993.

The summaries of the concepts and standards provided in this document should not be used as a substitute for the actual statements of Federal financial reporting concepts or accounting standards. The detailed standards are available from the Government Printing Office and on the Internet through FinanceNet. Also, FASAB will issue a codification of these concepts and standards. These standards have various implementation dates through fiscal year 1998; the standards may be amended in the future as necessary and additional standards are expected to be issued.

Elmer B. Staats

Chairman *



The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.