In this heady age of budget surpluses, one shouldn’t become too complacent about the government’s capacity to count its own money. In its most recent audit, the General Accounting Office (GAO) gave the Internal Revenue Service one clean opinion, four disclaimers of opinion, and one qualified opinion, and chided the agency on the one clean opinion for relying on “aging financial management systems” and “costly, time-consuming processes” to gather the data necessary for the audit. For example, officials had to make tens of billions of dollars in adjustments to validate taxes- receivable figures.
The IRS is not alone in its accounting angst: 20 of the 24 major federal agencies failed to comply with the Financial Accounting Standards Board’s federal accounting standards issued last year, according to a roundup report the GAO issued in June. The agencies, which were audited by a number of private firms and government agencies last spring, were also cited for nonintegrated financial management systems or inadequate reconciliation procedures, and weak computer security. “We’re concerned that on a day-to-day basis, they don’t have reliable information on which to make management decisions,” says Gloria Jarmon, a GAO director.
The IRS’s problems, however, are among the most severe. Plus, “it’s a credibility issue with the IRS,” says Gregory D. Kutz, the GAO director who headed the IRS audit team, “and I think that’s why they’re working so hard to resolve them. How can they expect taxpayers to keep good records when they can’t do it themselves?”
William Phillips, a partner in PricewaterhouseCoopers’s government consulting practice, is working with some federal- agency CFOs. “We shouldn’t take all the shock out of it, because it’s not a pretty picture,” he says of the GAO report. He also points out, however, that federal agencies started their CFO compliancy from scratch only six years ago, in accordance with 1994 legislation.