Department of Defense Financial Management: Past, Present, and Future.
It has been nearly 200 years since Thomas Jefferson made that proclamation An act that formally declares to the general public that the government has acted in a particular way. A written or printed document issued by a superior government executive, such as the president or governor, which sets out such a declaration by the government. , and yet the fundamental need to simplify our accounting system to provide federal managers and the Congress with better financial information remains as valid today as it was in 1802. Clearly, attempts to improve federal financial management are not anomalies that were brought about by a spate of recent legislative change; the federal government has been attempting to improve the federal system of accounting for almost 200 years! Nonetheless, the Congress has enacted several legislative changes over the past decade to focus the efforts of federal managers toward achieving the highest standards of financial management, and providing the level of accountability expected by the American taxpayer.
The Department of Defense (Department/DoD) is committed to being a proper steward of the resources and investments that the Congress and the American taxpayer have entrusted to it. Further, the Department recognizes that it needs to have better financial information to conduct its worldwide operations. Accordingly, the Department is in the process of a vigorous transformation of its financial management operations, processes, and systems. The goal of this financial management reform is to ensure that DoD financial management fulfills the information needs of decision makers, satisfies statutory requirements, eliminates fraud and waste, and provides superior customer service.
Virtually all of the Department's accounting systems were designed to account for how money appropriated by the Congress was spent-and these systems perform, very well, the function for which they were designed. But most of these systems were not designed to meet generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records.
Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP
See: Generally Accepted Accounting Principles
See generally accepted accounting principles (GAAP). ), and did not incorporate features such as accrual accounting Accrual Accounting
An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions happen.
Notes: that are prevalent outside of the government. Rather, these systems were often "stovepipe" systems specifically designed to meet a particular DoD Component's needs. And most of these systems are not compatible with each other, making it difficult for DoD financial managers to develop meaningful financial reports. Complicating com·pli·cate
tr. & intr.v. com·pli·cat·ed, com·pli·cat·ing, com·pli·cates
1. To make or become complex or perplexing.
2. To twist or become twisted together.
1. matters further, a significant portion of the financial information needed to compile financial statements does not reside in these accounting systems but, rather, resides in nonfinancial feeder systems.
These nonfinancial systems contain the day-to-day operating information used by the Military Departments and the Defense Agencies. They are called feeder systems because the day-to-day operating information needs to be translated into financial information. This is accomplished by having the information "fed" into the financial and accounting systems used to develop reports provided to DoD financial managers.
Legislative Financial Management Reform
Beginning with the passage of the Chief Financial Officers Actin actin, a protein abundantly present in many cells, especially muscle cells, that significantly contributes to the cell's structure and motility. Actin can very quickly assemble into long polymer rods called microfilaments. 1990, and continuing with subsequent legislation, the Congress has been stimulating financial management reform and challenging federal agencies to operate in a more businesslike busi·ness·like
1. Showing or having characteristics advantageous to or of use in business; methodical and systematic.
2. Purposeful; earnest.
3. manner, especially as relates to the reporting of financial data. Foremost among these legislative changes are the Chief Financial Officers Act, the Government Performance and Results Act The Government Performance and Results Act (GPRA) is a US Law enacted in 1993. It is one of a series of laws designed to improve government project management. The GPRA requires agencies to engage in project management tasks such as setting goals, measuring results, and reporting , the Government Management Reform Act, the Federal Financial Management Improvement Act, and the National Defense Authorization Act The National Defense Authorization Act is the name of a United States federal law that is enacted each fiscal year to specify the budget and expenditures of the United States Department of Defense. of 1998. These Acts are interrelated in·ter·re·late
tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates
To place in or come into mutual relationship.
in and, taken together, create rigorous demands and challenges for federal financial reform.
Chief Financial Officers (CFO See Chief Financial Officer. ) Act of 1990. The purpose of the CFO Act is to improve the general and financial management practices in the federal government by requiring the development of an integrated financial management system, including financial reporting and internal controls. The Act establishes a financial management leadership structure, requires preparation and audit of financial statements (for certain agencies) that conform with GAAP, and strengthens accountability reporting. The Act also requires the appointment of a chief financial officer in operating departments and agencies.
Government Performance and Results Act (GPRA GPRA Government Performance and Results Act of 1993
GPRA Gouvernement Provisoire de la Republique Algerienne
GPRA Government Procurement Reform Act (Philippines)
GPRA General Practice Registrars Australia ) of 1993. The purpose of GPRA is to improve public confidence, federal program effectiveness, and public accountability. The Act requires each federal agency to develop strategic plans, prepare annual plans setting performance goals, and report annually on actual performance as part of the annual budget submission. The legislation mandates the requirement to measure outputs and outcomes of federal programs.
Government Management Reform Act (GMBA GMBA Global Master of Business Administration (academics)
GMBA General Missionary Benevolent Association (LDS church)
GMBA Greater Mobile Bowling Association ) of 1994. The GMRA GMRA Government Management Reform Act (of 1994) builds on the CFO Act and requires all agencies to produce annual audited financial statements and accurate cost and performance information, as well as to integrate budget, accounting, and program data. This act also requires preparation and audit of a government-wide financial statement. The GMRA is designed to provide for a more effective, efficient, and responsive government.
Federal Financial Management Improvement Act (FFMIA FFMIA Federal Financial Management Improvement Act ) of 1996. The purpose of the FFMIA is to require all federal departments and agencies to install and maintain financial management systems that will allow them to prepare financial statements that comply substantially with federal financial management systems requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger General Ledger
A company's accounting records. This formal ledger contains all the financial accounts and statements of a business.
The ledger uses two columns: one records debits, the other has offsetting credits. (USGSGL USGSGL US Government Standard General Ledger ) at the transaction level. The USGSGL provides a uniform Chart of Accounts to be used in standardizing federal agency accounting. The FFMIA also requires that each federal agency head report to the Congress on the implementation of actions needed to bring its agency's financial management systems into compliance (i.e., a remediation plan).
National Defense Authorization Act of 1998. The 1998 Defense Authorization Act requires the Department to create a Biennial biennial, plant requiring two years to complete its life cycle, as distinguished from an annual or a perennial. In the first year a biennial usually produces a rosette of leaves (e.g., the cabbage) and a fleshy root, which acts as a food reserve over the winter. Financial Management Improvement Plan. The plan is required to address financial management within the Department, including feeder systems not owned or controlled by the financial community, that provide data to the Department's finance and accounting systems. The Act also requires that the Biennial Plan contain a concept of operations A verbal or graphic statement, in broad outline, of a commander's assumptions or intent in regard to an operation or series of operations. The concept of operations frequently is embodied in campaign plans and operation plans; in the latter case, particularly when the plans cover a series detailing how the Department intends to manage its financial operations. The Department is required to submit the Biennial Plan to the Congress no later than September 30th of each even-numbered year.
The Department is responsible for complying with the above and other applicable laws enacted by the Congress and for implementing rules, regulations, and guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. established by the federal government's "financial principals." The financial principals-the Department of the Treasury, the Office of Management and Budget The Office of Management and Budget (OMB), formerly the Bureau of the Budget, is an agency of the federal government that evaluates, formulates, and coordinates management procedures and program objectives within and among departments and agencies of the Executive Branch. (OMB OMB
Office of Management and Budget
Noun 1. OMB - the executive agency that advises the President on the federal budget
Office of Management and Budget ), and the General Accounting Office (GAO)--shape and define the requirements for financial compliance.
In 1990, the financial principals established the Federal Accounting Standards Advisory Board The Federal Accounting Standards Advisory Board (FASAB) is a United States federal advisory committee whose mission is to develop generally accepted accounting principles for federal financial reporting entities. (FASAB FASAB Federal Accounting Standards Advisory Board
FASAB Financial Accounting Standards Advisory Board ). The FASAB was created to consider and recommend accounting standards and principles to improve federal financial accountability and reporting. On October 19, 1999, the American Institute of Certified Public Accountants With over 330,525 CPA members (in August 2006), the American Institute of Certified Public Accountants (AICPA) is the largest professional organization of Certified Public Accountants (CPAs) in the United States of America. designated the FASAB as the body to establish accounting principles for federal government entities. Therefore, Statements of Federal Financial Accounting Standards issued by the FASAB are recognized as GAAP for applicable federal government entities. Further, this designation means that auditors of federal entity financial statements cannot express an opinion on federal financial statements as being in conformity with GAAP unless the financial statements comply with accounting standards promulgated prom·ul·gate
tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates
1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce.
2. by the FASAB.
Collectively, the five major pieces of legislation described above and the efforts of the federal government's financial principals and the FASAB are designed to provide the Department with the necessary guidance needed to be complied with in order to obtain an "unqualified audit opinion." (An unqualified pinion pinion
rear section of a bird's wing; holds the flight feathers. is the best opinion that may be provided by an auditor and, when given, means that the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with GAAP.)
Audited Financial Statements
In March 1998, the GAO issued its first-ever audit opinion on the fiscal year (IN) 1997 government wide financial statements. The GAO rendered a disclaimer of opinion Disclaimer of opinion
An auditor's statement that does not express any opinion regarding the company's financial condition.
disclaimer of opinion on those financial statements. (A disclaimer of opinion states that the auditor does not express an opinion on the financial statements, often because it cannot be determined whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity.) In rendering its audit opinion, the GAO cited material discrepancies with certain amounts reported on the government-wide financial statements for five major categories. These "show stopper Show stopper
A legal barrier, such as a scorched-earth policy or shark repellant system, that firms use to prevent a takeover.
A legal barrier to a takeover attempt that is virtually impossible for the suitor to overcome. " issues were: (1) property, plant and equipment, (2) inventory, (3) liabilities, (4) fund balance with Treasury, and (5) intragovernmental eliminations.
In May 1998, the Administration issued a memorandum to the Heads of Executive Departments and Agencies establishing a goal of obtaining an unqualified audit opinion on the government-wide financial statements. In that same month, the Secretary of Defense issued a memorandum to the DoD leadership expressing his commitment to achieve the Administration's objective.
The GAO again issued a disclaimer audit opinion on the FY 1999 government-wide financial statements. The GAO audit opinion on the government-wide financial statements considers the 24 largest federal agencies, only 13 of which received unqualified ("clean") audit opinions on their FY 1999 financial statements. While the Department has made significant improvements in its financial activities, the Office of the Inspector General Office of the Inspector General (or OIG) is a common sub-agency within cabinet-level agencies of the United States federal government and serves as auditing and investigative arm of the agency's programs focused on identifying waste, fraud and abuse. , Department of Defense, rendered a disclaimer of opinion on the DoD agency-wide financial statements for FY 1999. The Department is committed to attaining an unqualified opinion Unqualified opinion
An independent auditor's opinion that a company's financial statements comply with accepted accounting procedures. Antithesis of qualified opinion.
See clean opinion. and considers a disclaimer of opinion to be unfavorable. Since DoD's financial statements have a material effect on the government-wide financial statements, the DoD has been cited by the GAO as one of the agencies responsible for the disclaimer of opinion on the government-wide financial statements.
Despite the disclaimer of opinion, the Department does know how the funds entrusted to it are spent and has reasonable control over its assets. To a large extent, the major "show stopper" issues that prevent the Department from obtaining a more favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. audit opinion on its audited financial statements can be attributed to the myriad of archaic feeder and accounting systems that were never designed to comply with new accounting standards, and which do not integrate well with the Department's financial management systems. The Department is working diligently dil·i·gent
Marked by persevering, painstaking effort. See Synonyms at busy.
[Middle English, from Old French, from Latin d to modify its systems and procedures, to update its policy guidance, and to overcome other obstacles that preclude the Department from obtaining a favorable opinion.
The Department is taking aggressive action to implement the new federal accounting standards. This requires overhauling DoD-wide management information systems and involves both a long-term and short-term strategy.
The long-term strategy is, through reengineering or replacement, to ensure that both the Department's financial and nonfinancial systems can implement new federal accounting standards and that they interface with the Department's other financial and nonfinancial systems that feed data into, or receive data from, them. It is estimated that less than half of the information needed for sound financial management originates in systems under the control of the Department's financial community. The remainder comes from nonfinancial feeder systems--most notably from acquisition, logistics, medical, and personnel systems. It is an enormous challenge to upgrade these feeder systems to produce the needed information and to improve their interfaces with DoD financial systems--especially since the primary purpose of these nonfinancial systems is to support the U.S. military forces defending our nation, not to produce financial data. Additionally, these systems often are not sufficiently flexible to respond rapidly to cha nging customer needs, legislative changes, contingency operations A military operation that is either designated by the Secretary of Defense as a contingency operation or becomes a contingency operation as a matter of law (10 United States code (USC) 101[a]). It is a military operation that: a. , management initiatives, or requirements from other government agencies.
The Department developed a comprehensive plan--the Financial Management Improvement Plan (FMIP FMIP Financial Management Improvement Plan
FMIP Florida Migrant Interstate Program
FMIP Fleet Material Improvement Program
FMIP Fast Mobile Ip )--to reform its business practices. On October 26, 1998, the Department submitted to the Congress its first Biennial FMIP. Since then, the Department has voluntarily updated and submitted the Plan annually. In the Plan, the Department lays out a strategy for improving future financial management operations. The Plan includes the Department's financial management concept of operations and addresses both financial systems and nonfinancial feeder systems. The Plan also reflects the Department's plans for improving and/or replacing systems throughout the Department. The projected timeframe for having new or improved systems in place is September 30, 2003. [The FMIP may be found at http://www.dtic.mil/comptroller/99FMIP/.]
As substantial and significant amounts of the information that is reported in the Department's financial statements originates in non-financial feeder systems, the Department is initiating a Year 2000 (Y2K See Y2K problem and Y2K compliant.
Y2K - Year 2000 )-like process for monitoring the progress in enhancing the Department's systems. As with Y2K, the Department needs a sophisticated tracking system to monitor progress on remediating information management systems. The objective of this process is to monitor and ensure that DoD systems are in compliance with federal financial management requirements. The estimated completion date for this process is September 30, 2003.
For the short-term, the Department is developing interim methodologies to achieve acceptable results in its major accounts sufficient so as to support a more favorable audit opinion on the Department's financial statements. For example, the Department hired Certified See certification. Public Accounting (CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. ) firms to assist in the valuation of its property and in the development of new procedures on accountability. The Department also is working with the audit community to develop more detailed policy guidance to assist DoD Components in identifying and reporting information needed for more accurate, consistent and reliable financial reports. Interim actions likewise are being advanced to overcome gaps or problems in current information flows. All these actions are being accomplished in partnership with the OMB, the GAO, and the OIG Noun 1. OIG - the investigative arm of the Federal Trade Commission
Office of Inspector General
independent agency - an agency of the United States government that is created by an act of Congress and is independent of the executive departments , DoD. Collectively, these interim methodologies are referred to as the Department's Implementation Strategies.
Under the umbrella of DoD financial business practices reform, the Department as a whole, and functional managers in particular, desire better financial information to conduct their worldwide operations. Taking positive and effective measures to correct systemic deficiencies is a Department-wide management challenge. The Department continues to work with the audit community to develop more detailed policy guidance to assist the DoD Components in identifying and reporting additional information not previously required and, therefore, not currently provided. The Department's financial management reforms are continuing to cut costs and improve effectiveness by exploiting the best of private and government practices.
The Department has achieved substantial progress and fundamentally is transforming DoD financial activities, as well as other functional areas with which those activities must interact, but much work remains to be done. In both the financial and the nonfinancial communities, a significant investment in modernizing systems, upgrading procedures, and in training people needs to be accomplished. Given the magnitude and complexity of the Department's global mission, coupled with the plethora plethora /pleth·o·ra/ (pleth´ah-rah)
1. an excess of blood.
2. by extension, a red florid complexion.pletho´ric
1. of nonfinancial and financial systems, it is likely that the long-term actions required to correct the Department's systemic deficiencies could cost substantial amounts and will not be completed prior to fiscal year 2003.
Dramatic changes related to federal financial management have occurred in the last decade. The CFO Act mandates that agencies and departments develop and maintain integrated accounting and financial management systems, including financial reporting and internal controls, that comply with applicable accounting principles, standards and requirements, and internal control standards. The Government Performance and Results Act requires agencies to submit to the Congress of a strategic plan for agency program activities, and requires the measurement of outputs and outcomes of federal programs. The Government Management Reform Act requires the head of each agency to submit an audited financial statement to the OMB annually. The Federal Financial Management Improvement Act requires the annual submission of a remediation plan for all agencies and departments that have not fulfilled the requirement for compliant integrated accounting and financial management systems. The Defense Authorization Act of 1998 requires the D epartment to provide to the Congress a Biennial Financial Management Improvement Plan that addresses all aspects of financial management within the Department of Defense, including the financial systems, accounting systems, and nonfinancial data feeder systems. Finally the FASAB issued new federal-wide accounting standards designed to improve federal financial accountability and reporting. Collectively these changes are intended to make the government operate in a more businesslike manner.
Achieving the mandates required by these legislative changes and incorporating new accounting standards is a daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin challenge for the Department because its financial and nonfinancial systems were not designed to produce business-type financial statements. Nonetheless, the Department has made, and continues to make, significant financial management reforms to comply with these new requirements, and expects to make substantial progress each year toward achieving more favorable audit opinions on its financial statements.
The enormous efforts undertaken by the Department to modify its systems and procedures, and to update policy guidance are not, however, designed solely to achieve an unqualified opinion on its financial statements. Rather, these efforts are designed to improve overall financial information to better ensure that decision makers within the Department are provided the data needed to effectively execute their duties. The senior leaders within the DoD are committed to demonstrating, to the American taxpayer, that the Department is a proper steward of the resources entrusted to it. Achieving favorable audit opinions on our financial statements will do much to improve credibility with the public that the Department's senior financial managers are effectively carrying out their fiduciary responsibilities.
And it will bring us much closer to attaining that goal set by Thomas Jefferson almost 200 years ago!
Frank Murphy For other persons named Frank Murphy, see Frank Murphy (disambiguation).
William Francis (Frank) Murphy (April 13, 1890 - July 19, 1949) was a politician and jurist from Michigan. has held a variety of financial management and logistics positions during his 22-year career with the Department of Defense. He currently is a senior financial management analyst within the Office of the Under Secretary of Defense (Comptroller), Directorate for Accounting Policy. He is an active ASMC ASMC American Suzuki Motor Corporation
ASMC American Society of Military Comptrollers
ASMC Association of Sales & Marketing Companies
ASMC Advanced Semiconductor Manufacturing Conference
ASMC Area Support Medical Company
ASMC American Small Manufacturers Coalition Washington Chapter member.