Summary: GAO will provide strong leadership in the government's effort to be more effective and efficient in the whole area of accounting and financial management. This decade holds many challenges to government in the area of financial management. The size of Department of Defense expenditures raises the question of whether the financial management systems within the Department are capable of accounting for and controlling such vast expenditures. The recent change to give states block grants rather than categorical grants allows more program flexibility but reduces federal oversight over such expenditures, raising the question of accountability and reports management. While the single audit approach has been adopted as more cost effective and more comprehensive than past audit procedures, various implementation problems need to be solved before the expected benefits are fully realized. The federal budget process is in need of simplification and improvement. The budget has grown, and the exclusion of several important federal programs from the budget results in incomplete budget coverage. Furthermore, the growth in entitlements and other less controllable portions of the budget and the increasing number of federal activities with economic consequences; notably loan guarantees, special tax preferences, and regulations have created unique problems. Also, the budget process has been encumbered with complicated procedures, paperwork, and measurement complexities that make it difficult for Congress to use budget information to assess program results and set national spending priorities. Currently, GAO is in the process of developing a conceptual framework under which accounting principles and standards can be examined and revised to conform with the conceptual framework. GAO is also looking at recent developments in setting accounting principles at the state and local levels of government. GAO reviews of operating accounting systems show that many agencies maintain marginal systems which do not provide the needed financial information. Widespread use of the computer will have a tremendous impact on internal controls within government financial management systems. Internal control systems properly conceived, soundly based, and effectively monitored are the essential prerequisites necessary to achieve good accountability. GAO fully supports proposed legislation which is designed to improve internal controls.
