United States. Congress. Senate. Committee on Gove.

Financial problems : are the agencies getting better? : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, second session, July 28, 1994 online

. (page 5 of 18)
Online LibraryUnited States. Congress. Senate. Committee on GoveFinancial problems : are the agencies getting better? : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, second session, July 28, 1994 → online text (page 5 of 18)
Font size
QR-code for this ebook

appropriate courses of action and in many cases problems were re-
solved as the audit progressed.

We are committed to addressing the remaining issues which pre-
vented GAO from issuing an opinion on the reliability of our finan-
cial statements. We are working hard to find ways to provide de-


tailed information to our auditors that will enable them to render
an opinion.

As you know, Mr. Chairman, and the Commissioner mentioned
this last week, tax systems modernization will deliver even more
impressive, longer-term changes that will be critical in eliminating
many problems, but in the meantime we are aggressively pursuing
short-term actions. We believe we have narrowed the issues associ-
ated with an opinion to four or five key issues, and I would like
to outline those for you today because they are significant.

First, reliable supporting information on collection of seized as-
sets will be available for the audit of the 1994 statements. We will
conduct an inventory of all seized assets and we will reconcile them
to the general ledger for both collection and criminal investigation.
The criminal side of the seized asset issue was no issue with GAO
this year. We have made significant improvements to the system
used by CI, and by October 1, 1994, we will have in place a Nation-
wide system for tracking assets seized by the collection program.

The second issue is that we will also provide reliable supporting
information on all accounts payable balances that will be reported
in 1994. When we have converted to our new administrative sys-
tem, entries are made to transfer balances because the old financial
system did not have the necessary detail. We believe the balances
will be accurate, but this detailed information will have to be
pulled from our data.

Third, we will work with GAO to determine the best way to re-
duce the scope limitation due to the inability to provide supporting
information for collections by type of tax. We have some long-term
key solutions underway, but we will investigate short-term actions
to provide information on collections by type of tax. Under the new
electronic funds transfer payment system, we will have payment
and return information available. For now, we will attempt to de-
termine that information from detailed extracts of the master file,
and we have committed to do that for GAO and ourselves.

Finally, we will analyze in-process revenue transactions and tax
credit balances. As we build new systems, we will ensure that that
type of information is available regularly. We also have a task force
that is working on cash reconciliations from our operating funds.
We will make some adjustments in our 1994 financial statements
to clear up old balances from a time when we did not have ade-
quate controls on our basic financial management processes or
when information was not available.

It is our belief if we and GAO can agree on the approach to those
four issues that they could then opine on our statements in the
1994 audit that is underway as we speak.

One way this Committee can help other agencies to achieve im-
provements in financial management is to expand the require-
ments for audited financial statements across Government. For
that reason, we fully support the FFMA. All agencies should be re-
quired to submit to the rigors of a close examination of how well
they are accomplishing their mission and safeguarding the assets
that are entrusted to them.

Many of our fixes will have to wait, in effect, for TSM. The kinds
of integrated information, more accurate information, more timely
information, that only tax systems modernization can bring to our


employees will, in effect, remain a critical element in achieving the
real fixes in some of the other areas GAO has mentioned and you
mentioned that are not by themselves integrally related to an opin-
ion itself.

I also believe that the CFO Act, the FMFIA Act, the FFMA Act
that we hope passes, and the Government Performance Act really
form a powerful series of tools to link financial management and
program management. I spoke at an AGA conference earlier this
year and really tried to indicate to people that for people in this
business, in financial management, as well as in program manage-
ment, this is an exciting time. I am excited how far IRS has come.
I recognize that some truly difficult work lies ahead of us, but I am
confident that we have laid the right groundwork and are moving
ahead with a personal commitment of top agency executives.

We are fortunate to have the full support of the Commissioner,
the Deputy Commissioner, and the Treasury Department, and es-
pecially the CFO organization at Treasury. They have fought hard
for resources in the administration. We also appreciate the support
from this Committee and look forward to working with you in the

Mr. Chairman, that concludes my remarks. I am glad to take
questions from you or from Mr. Cochran.

Chairman Glenn. Thank you. We will wait until everyone has
given their statement here.

Ms. Goerl is Chief Financial Officer, U.S. Customs Service. I may
have introduced you as Vincent. Did I do that a while ago?

Ms. Goerl. It is Vincette.

Chairman Glenn. Vincette, right; thank you.


Ms. GOERL. Good morning, Mr. Chairman and members of the
Committee. I am pleased to be here today to discuss the results of
the Chief Financial Officers Act audit of the Customs Service fiscal
year 1993 activities conducted by the General Accounting Office
and the plans we have to implement the Act and improve our fi-
nancial management practices. I will also comment on the broad is-
sues of Customs CFO Act implementation.

First, Commissioner Weiss and I are strong supporters of the
CFO Act and we are committed to full implementation of the Act.
In the interests of brevity, I will summarize my prepared state-
ment for the record.

As you know, the Act was passed because agencies were not giv-
ing adequate attention to financial management. Because of Cus-
toms' inadequate attention in the past, we were not able to obtain
an unqualified opinion from GAO on our financial activities for the
past 2 fiscal years. However, Customs has made financial manage-
ment a very high priority and we are aggressively attending to our
deficient areas. As a result of the audit findings and our height-
ened attention, we are pleased to highlight some of our significant

1 The prepared statement of Ms. Goerl appears on page 76.


We established a stand-alone CFO organization that reports di-
rectly to the Commissioner, and I am here today because the Com-
missioner recognized the value of the appointment and placement
of a CFO as his chief fiscal adviser.

As an integral part of the CFO organization, we established a
group of highly competent individuals to compile and improve the
quality of our financial statements. We developed a comprehensive
plan with GAO to address the significant issues identified by
GAO's 1992 financial audit and will do so for 1993 as well. In Octo-
ber 1992, we implemented a new core accounting system and devel-
oped plans to integrate the system with ancillary systems.

We improved our accounts receivable policies to identify valid ac-
counts receivable and determine collectibility of such receivables.
We collected $31.6 million due through improved debt collection
processes and procedures. We conducted a 100-percent physical in-
ventory of our capitalized equipment and a sample of our
noncapitalized property, and we successfully reconciled the inven-
tory to the property records. We also conducted a 100-percent phys-
ical inventory of drugs, currency, and seized property.

As a result of our efforts to address specific problem areas, we
believe the financial audits for 1994 and 1995 will show that we
are making tremendous progress. However, if we are to make
progress, we need to address fundamental problems in our finan-
cial management environment. They are, as I see them, the lack
of integration between revenue and appropriated financial systems,
the lack of full appreciation among Customs staff of the financial
implications of internal control weaknesses in operational areas,
and the need to strengthen leadership of the financial management

To ensure that we are well positioned to address the underlying
causes of Customs' financial management problems, I have directed
a team to develop a comprehensive financial management improve-
ment plan that focuses on the problems and causes and prioritizes
the solutions, and develop proposals to organize staff and develop
our financial management employees to effectively carry out the fi-
nancial programs. The study and recommendations will be deliv-
ered to me in September.

I believe we have a great opportunity to focus on actions we can
take before fiscal year 1995 begins, as well as other activities that
we can complete in the next year. I would like to highlight some
of those short-term actions today.

We will be developing and implementing a program for compli-
ance measurement and bonded warehouses, and determining the
feasibility of using a similar methodology to evaluate compliance at
foreign trade zones. We will issue and implement procedures re-
garding the approval of duty refund claims to reduce the risk of du-
plicate payments and assure that payments are made to the correct

Customs will enhance its automated systems to track property
from seizure to disposition, enhance physical security at seized
property vaults and warehouses, and improve controls over drugs
and currencies used in enforcement activities. We will again con-
duct a 100-percent physical inventory, now planned for September,
of seized property and reconcile to our accounting records.


We will also develop policies in conjunction with the Department
of Justice that establish the appropriate quantity of drugs needed
as evidence upon seizure and direct the timely disposal of
unneeded drugs. Customs will enhance procedures to account for
expenditures and revenues related to undercover operations, as
well the custody of assets acquired and retained or disposed of dur-
ing these operations, while we develop long-term automated sys-
tems that compile this data.

We will issue and implement a policy to establish a value for cap-
italized property when there is no record of original acquisition
value. We will issue and implement a policy to set the appropriate
value for aircraft and marine parts, and improve related account-
ability. We will also design adequate controls that are cost-effective
to safeguard noncapitalized property.

Many of our efforts will require long-term commitment on the
part of Customs to fully implement financial management improve-
ment. They all require reengineering of our program and financial
processes and the subsequent redesign and development of modern
information management systems that will support those proc-

Our long-term initiatives are focused in three areas — trade law
compliance, redesign of the automated commercial system, and ex-
panding and enhancing our core financial management system. I
would like to briefly discuss those plans today.

In the area of trade law compliance, we will pilot a program to
include a Nationwide year-long test of all main categories of goods.
Successful implementation of the program will enable Customs to
expand the program further. At the same time, we could provide
reasonable assurances that the revenues we report are those that
should have been collected.

As part of the redesign of the automated commercial system, we
plan to implement the Automated Commercial Environment, a
total automated system encompassing the full range of commercial
activities under our jurisdiction. ACE will be an integrated,
streamlined international trade information system encompassing
both imports and exports. It will serve a broad spectrum of users
both inside and outside the Federal Government.

As a part of that effort, we also plan to design a revenue account-
ing system that is at the leading edge of technology and affords
users the ability to take full advantage of the data. We will also
continue our efforts to expand and enhance our new integrated fi-
nancial system by coordinating with Treasury in the effort to
standardize, compile, and report financial data that can be consoli-
dated with Treasury-wide financial management data. These areas
include travel, revenue, accounts receivable, procurement, property,
and cost management.

We are a strong supporter of electronic commerce and will con-
tinue to expand participation in the automated clearinghouse pro-
gram that forwards entry data from importers or brokers and per-
mits Customs to collect related revenue by charging the importer's
or broker's bank account. Additionally, we will pilot an automated
system to receive invoices electronically from vendors and remit
payment without manual intervention.


As we develop our financial management improvement and orga-
nizational plans, I assure you that we will be guided by the follow-
ing principles. The staff must understand the value of integrated
program, budget, and financial systems, and that such systems will
improve their day-to-day work effectiveness and efficiency, while
building and implementing internal controls that are transparent
and afford reliable information to make sound financial manage-
ment decisions.

There must be a qualified financial leadership that includes a
CFO who possesses a strong financial management background
and a Deputy CFO with a similar background. Management must
ensure that financial management policies are continuously evalu-
ated and a competent staff is continually trained to maintain the
necessary skills needed in the rapidly changing area of automated
technology and business.

The Chief Financial Officer must report to the highest level in
the agency to ensure independence and oversight of the design and
implementation of good financial systems. Finally, agency manage-
ment must recognize the importance of independent assessments
by independent auditor organizations.

Mr. Chairman, the periodic meetings with members of your staff
to obtain their insight toward our current and future improvements
to successfully implement the Act have been very beneficial. I wel-
come the opportunity to continue these meetings and welcome any
suggestions your staff may offer. Together, we will successfully im-
plement the Chief Financial Officers Act and provide the much
needed assurance to the Congress and the public that the funds en-
trusted to Customs are effectively and efficiently used.

Mr. Chairman and members of the Committee, thank you for the
opportunity to express my views on the CFO Act and to discuss the
improvements made, underway and planned to successfully imple-
ment the Act at Customs. Mr. Chairman, I request that my formal
statement be entered into the hearing record and I am pleased to
answer any questions you or the Committee might have.

Chairman Glenn. Thank you very much. All the statements will
be entered in the record.

Mr. Eisenhart is Acting CFO at the Department of State.

Mr. Eisenhart.


Mr. Eisenhart. Good morning, Mr. Chairman and members of
the Committee. I appreciate the opportunity to appear here today
to discuss the Chief Financial Officers Act, the State Department's
financial statements, and the financial management improvements
that the Department is making.

Senator I can assure you that we are excited by the prospects of
financial management improvement. With declining resources and
the need for increased flexibility in a rapidly changing post-Cold
War world, top management from the Secretary on down regard
strengthening our financial capacity as absolutely essential to the
successful conduct of foreign policy.

1 The prepared statement of Mr. Eisenhart appears on page 80.


The problems with financial management at State are well docu-
mented. Thanks to the excellent work by the Inspector General's
Office, the General Accounting Office, the Hill staff, and many in-
ternal reviews, we are well aware of our shortcomings.

We have developed an aggressive plan for financial management
improvement. A series of documents, including our Five-Year Fi-
nancial Management Plan, our Chief Financial Officers Report,
Federal Financial Managers' Integrity Act Reports, and our Finan-
cial Management Information Strategy Plan, map out a plan for fi-
nancial management improvements. It is a comprehensive, inte-
grated, and extremely aggressive plan. Despite its ambitious sched-
ule, it is a multiyear effort. The current condition of financial man-
agement at the State Department took years, even decade, to de-
velop and it will take years to solve.

While a great deal has been done, and we are proud of the ac-
complishments since the passage of the CFO Act, there is still even
much more to do to bring the Department into full compliance. The
Act has been and continues to be extremely helpful, but is no pana-
cea. Financial management improvement requires people, training,
and budgetary resources, all of which are in short supply in this
difficult budget climate. Our problems are also complicated by the
unique worldwide and often difficult environment in which the
State Department operates.

Senator Glenn, as you mentioned in your letter, there are many
actions we can take today that do not have to wait for the magic
of a new system. We have achieved a great deal in the short term
and expect to make gains in the next year. Let me describe some
of the actions that are underway and now planned for the next 12
to 18 months.

Interest penalties: In the past, the Department's compliance with
the Prompt Pay Act has been unsatisfactory. For example, the De-
partment paid approximately $1.2 million in interest penalties for
fiscal years 1990 and 1991. For fiscal year 1993, we incurred
$570,000, and anticipate for fiscal year 1994 to have that down to
approximately $350,000.

Reducing financial systems: We are making steady progress in
reducing the number of financial systems. We have gone from six
to three accounting and disbursing systems, and from three to two
foreign service national payroll systems, and will soon have one
standardized foreign service national system.

Disbursing: The Department had 21 U.S. disbursing officers
worldwide who were accountable to Treasury for billions of U.S.
dollars in foreign currency equivalents. In general, the USDOs
were unable to reconcile, balance, or clear their Treasury accounts
or accurately report to Treasury the value of their foreign currency
holdings. We have set about correcting this situation. To date, we
have centralized 17 of the 19 USDO operations. We have developed
operating procedures and have enhanced controls and oversight.

Cashiering: The USDOs were not consistently exercising proper
oversight of the cashier functions. We have assigned specific re-
sponsibility for cashier oversight to one office. All cashiers and cer-
tifying officers now must pass a written exam before they can be
designated to carry out those functions. In addition, in fiscal year
1995 we expect to begin installing a modern PC-based cashiering


system that will be fully integrated with our current and future ac-
counting systems.

Data cleanup: We have initiated intensive data cleanup efforts to
improve the accuracy of the Department's books. For example, we
have contracted with an independent CPA firm to establish proce-
dures and perform reconciliations for disbursements of
withholdings made from employees' pay. These accounts had not
been reconciled for years.

In addition to the items I have just mentioned, we have initiated
two pilots under the Government Performance and Results Act. We
are improving our medical receivables and accounting for overseas
proceeds of sale. We have developed standardized reference files
and are improving main frame security.

The Chief Financial Officers Act has made a substantial impact
in moving the State Department toward better financial manage-
ment, accountability, and responsibility. It underpins many of the
short-term gains described above and is the foundation for our com-
plex, long-term strategy of improvement. The Act has been instru-
mental in securing top management's commitment to reform. Sen-
ior officials, including Deputy Secretary Talbott and Under Sec-
retary Moose, are knowledgeable about financial management and
take an active interest in it. We regularly discuss progress on our
financial management systems and other financial matters with
the Under Secretary.

The Act has prompted a reorganization of financial management
activities. The reorganization was far-reaching within the State De-
partment. As a result, now all accounting and payroll systems are
under the purview of the CFO. Before, many systems and financial
management operations, particularly overseas, were outside of the
control of the CFO.

The CFO organization has been streamlined and roles rational-
ized with definite responsibilities. The CFO is also playing an in-
creasing role in the selection and training of the foreign service fi-
nancial management personnel. Probably, one of the most signifi-
cant things is the move toward audited financial statements at the
Department of State.

The Department of State prepares statements for three entities —
the International Boundary and Water Commission, which is the
IBWC; the Foreign Service Retirement and Disability Fund,
FSRDF; and the Department's commercial activities, revolving
funds, and trust funds, or the rollup as it has been called. The roll-
up statement comprises approximately 60 percent of the Depart-
ment's appropriations and consists of multiple funds.

For fiscal year 1993, the statements for the IWBC are complete
and the OIG has issued an unqualified opinion. The statements for
the FSRDF and the rollups are in final review and will be issued
soon. While late, these statements are being issued 4 months and
10 months earlier, respectively, than the fiscal year 1992 state-
ments. We intend for all of the 1994 statements to be issued on

Based on our discussions with the IG, we anticipate that the OIG
will disclaim an opinion on the fiscal year 1993 FSRDF statements.
This is primarily due to the inability to verify investment balances
held by Treasury. The preparation and audit process is well under-


way and we plan to resolve these major deficiencies by the end of
fiscal year 1994. We are hopeful for an unqualified opinion on the
1994 statements.

Unfortunately, due to inadequate records, poor financial systems,
poor management controls, and the tremendous task of reconstruct-
ing and integrated worldwide data into a single reporting entity,
the rollup statements are unauditable and do not reflect the enti-
ty's true financial condition. Nonetheless, we feel that preparing
the statements has been of benefit. For example, the statement
preparation and limited audit identified a number of previously un-
known data and internal control shortfalls in current systems and

We have developed a strategy to improve the auditability of the
rollup statements pending the upgrade of our financial manage-
ment systems. This strategy is based upon our experience in pre-
paring the 1992 and 1993 rollup statements, information available
to us through audits and discussions with the IG, and internal re-
views. Our strategy is multifaceted and involves incrementally im-
proving the auditability of the funds, accounts, and processes, and
potentially revising the single structure to multiple reporting enti-

For 1993 and 1994, we are concentrating on the accuracy of the
smaller funds in the rollup. Generally, these funds have a small
number of accounts and transactions, and consequently we are in
a better position to manually reconstruct amounts to be reported.
At the end of fiscal year 1994, if we are successful in improving the
auditability of the smaller funds, we envision breaking the rollup
funds into three reporting entities. The entities would consist of the
small funds, the foreign buildings operations, and the salaries and
expense and diplomatic and consular programs appropriations. In
doing so, we will reduce the amount of Department dollars consid-
ered unauditable.

For 1995, we will concentrate on the foreign buildings operations,

1 2 3 5 7 8 9 10 11 12 13 14 15 16 17 18

Online LibraryUnited States. Congress. Senate. Committee on GoveFinancial problems : are the agencies getting better? : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, second session, July 28, 1994 → online text (page 5 of 18)