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ABC/M Compliance

In October 2001, the General Accounting Office issued a report to Congress titled, "FFMIA Implementation Critical for Federal Accountability. FFMIA is the Federal Financial Management Improvement Act, a 1996 law requiring auditors to state whether federal agencies have complied with each of the required accounting standards.

A very important accounting standard covered by the requirements of FFMIA is the one mandating that agencies implement managerial cost accounting systems, with an emphasis on activity-based costing and cost management. As GAO notes in its report, federal agencies in large part have not complied with this requirement in a way that gives them the type of cost information they need to manage programs efficiently and effectively, as envisioned by the Government Performance and Results Act. The report states (emphasis added):

"A major cornerstone of FFMIA is good cost accounting information that program managers can use in managing day-to-day operations. Managerial cost accounting is aimed at providing reliable and timely information on the full cost of federal programs, their activities and outputs … Developing the necessary information, which is needed as well to support GPRA implementation, will be a substantial undertaking … Our sense is that today few agencies may have good cost accounting information … Further, the move to implementation of performance-based budgeting highlights the need for cost accounting information at the program level."

The following year's GAO report on FFMIA implementation, released in October 2002, made similar arguments linking managerial cost accounting to GPRA, while also noting, "Agency implementation of managerial cost accounting can be a complex and arduous task." Under the subheading "Managerial Cost Information Is Critical for Implementing the President's Management Agenda," GAO stated,

"[G]ood information on financial program performance is necessary for the full and effective implementation of GPRA. The success of GPRA is crucial to transitioning to a more results-oriented federal government where agencies are held accountable for achieving specific program results. Cost information supports decision making in a variety to different business environments, such as … to manage resources in the accomplishments of broad program goals, to manage the unit cost of output to ensure that units of output are produced as effectively and efficiently as possible … Linking of agency budgets with performance is enhanced when agencies integrate managerial cost information into their program activities (or lines of business)."

As suggested by GAO in these two reports, without good cost accounting information agencies will have difficulty implementing performance-based budgeting. This is one reason that the Office of Management and Budget is pushing agencies to develop this type of information. OMB's interest in this effort is reflected in several criteria of its Program Assessment Rating Tool, which it now uses during the budget process to evaluate program effectiveness.