Management's Discussion & Analysis

Financial Management

Grants and Cooperative Agreements

In FY 2025, the federal government obligated approximately $1.2 trillion for grants and cooperative agreements, according to USAspending.gov. This figure does not include obligations for other types of financial assistance, such as loans or direct appropriations and may not reflect deobligations from terminations that occurred in FY 2025. A large portion of grant funding was provided under the Bipartisan Infrastructure Law and the IRA of 2022. During FY 2025, OMB worked with the Council on Federal Financial Assistance and grantmaking federal agencies to ensure the alignment of federal programs with Administration priorities and the President’s Executive Orders, including Executive Order 14332, “Improving Oversight of Federal Grantmaking.” As a result of this Executive Order, Federal agencies instituted a more disciplined process for reviewing Notices of Funding Opportunities (NOFOs) and federal awards. Federal agencies designated senior appointees responsible for oversight of each agency’s process of issuing NOFOs and executing grants and cooperative agreements. In addition, under the President’s Management Agenda (PMA), agencies are ensuring that grants and cooperative agreements align with the Administration’s America First priorities, that funds go only to high-performing grant recipients, and that grant recipients are held accountable. Through the Executive Order and the PMA, the Administration is assuring that taxpayer dollars spent on grants and cooperative agreements are delivering results for the American taxpayer.

Improving financial assistance data continues to be a priority for OMB, including ensuring that federal assistance recipients justify requests for payments and report subaward data on USASpending.gov. OMB has also continued to develop the Federal Program Inventory to ensure it accurately reflects programs that have specific and measurable objectives that can be used to assess results, thereby improving visibility into program efficiency and effectiveness.

Payment Integrity 

An improper payment is any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirement. Improper payments include overpayments, underpayments, payments to ineligible recipients, payments for ineligible services, duplicate payments, and payments lacking proper documentation.

Preventing improper payments, especially those resulting from fraudulent activity, continues to be a top priority of the Administration. The PMA demonstrates this commitment by prioritizing the elimination of wasteful spending and ceasing payments to fraudsters. To be successful in preventing improper payments, the Administration has placed an increased focus on improving up-front processes and controls that enable agencies to make payments accurately and minimizing monetary losses. In March 2025, the President issued Executive Order 14249, “Protecting America’s Bank Account Against Fraud, Waste, and Abuse.” This Executive Order removed the barriers that prevented agencies from easily sharing data and fully utilizing Treasury’s Do Not Pay System. OMB continues to work with Treasury, agencies, the Chief Financial Officers Council, and other stakeholders to add new data to Do Not Pay, and enable agencies to sign-up and start screening payments.

PaymentAccuracy.gov provides payment integrity information that OMB and Executive agencies are required to report under the Payment Integrity Information Act of 2019, including program compliance, overpayment recoveries, and accountability mechanisms.

Agency Financial Report Audits

Since the enactment of the CFO Act, the federal financial management community has made significant progress in financial accounting and reporting. In June, OMB issued Memorandum M-25-30 “Ensuring Accountability: How We Oversee, Audit, and Improve.” M-25-30 calls for a strategic reset of how the government conducts financial statement audits and utilizes the results of those audits. The Administration has led agencies to take a hard look at their processes and procedures, and identify multiple opportunities to improve. The due diligence and work of these agencies provides a clear path forward to assuring good stewardship of taxpayer dollars. As shown in Table 10, for FY 2025, 16 of the CFO Act agencies obtained an unmodified opinion from the independent auditors on their financial statements, with one opinion pending as of the date of publication of this report.³⁴ In addition, 56 auditor-identified material weaknesses were identified for FY 2025. There are instances where increased due diligence by the current Administration led to findings on matters that had been missed or ignored during the prior administration. Mitigation strategies are now in place to address findings and improve stewardship of taxpayer dollars. Twenty-six of these material weaknesses are associated with DOD. The other 30 material weaknesses are associated with non-DOD agencies. As of the date of this Financial Report, one agency (DOL) had not issued its AFR.

Financial Management and Grants Systems

Federal agencies continue to face challenges, in implementing financial management systems that meet federal requirements. Five CFO Act agencies reported lack of substantial compliance with one or more of the three Section 803(a) requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA) in FY 2025. As of the date of this Financial Report, one agency had not reached or reported a conclusion, and one agency had not yet issued its AFR. Seven auditors reported agencies’ lack of substantial compliance with one or more of the three Section 803(a) FFMIA requirements in FY 2025. Two auditors had not reached or reported a conclusion and, as noted above, one agency had not yet issued its AFR as of the date of publication of this report.

Because of the federal government’s size and diversity, its financial management infrastructure consists of both legacy and modernized systems and standardized and customized systems. As noted above, in March the President signed Executive Order 14249, “Protecting America’s Bank Account Against Fraud, Waste, and Abuse”, to fix these long-standing issues. This Executive Order directed CFO Act agencies to consolidate to a single agency-wide Financial Management Quality Service Management Office (FM QSMO) approved system. Consistent with the Executive Order, the PMA seeks to consolidate and standardize systems and eliminate duplicative ones.

OMB and Treasury, as the designated Quality Service Management Office (QSMO), continue to pursue financial management improvement strategies that have government-wide benefits. These strategies include continuing to increase the number of providers available on the FM QSMO Marketplace, enhancing system standards, creating standardized processes, gathering system requirements, and assuring interoperability with other system interfaces. The OMB and Treasury’s efforts are providing a path to the decommissioning of legacy systems and migration to updated systems, leveraging modernized technologies.

OMB and HHS, as the designated Grants QSMO, continue working to modernize and streamline the government’s vast and aging legacy grants management systems. The Grants QSMO established a marketplace of shared service providers for federal grants and developed a Catalog of Market Research highlighting select vendors that offer standard award management systems. Federal agencies have been taking steps to ensure that they continue to advance the Administration’s goals of consolidating systems, migrating to federal shared services, and buying from Grants QSMO-approved vendors. OMB and HHS continue to develop government-wide data standards to be incorporated into marketplace offerings in alignment with the Grant Reporting Efficiency and Agreements Transparency Act of 2019. The goal of this effort is to allow agencies to successfully manage grants through the entire award cycle and allow grants management systems to interface with agency financial management systems.

Internal Controls

Federal managers are responsible for developing and maintaining effective internal controls. Internal controls help ensure effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Safeguarding assets is a goal of each of these three objectives.

OMB Circular A-123 implements the requirements of 31 U.S.C. 3512 (c) and (d) [commonly known as the Federal Managers’ Financial Integrity Act of 1982] by providing agencies a framework for assessing and managing risks strategically and tactically. The Circular contains multiple appendices that address one or more of the objectives of effective internal control.

• Appendix A outlines a risk-based approach for agencies to use to assess, document, test, and report on internal controls over reporting and data integrity;
• Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in government charge card programs;
• Appendix C implements the requirements for the Payment Integrity Information Act of 2019; and
• Appendix D defines requirements for determining compliance with the FFMIA that are intended to reduce the cost, risk, and complexity of financial system modernizations.

As noted above, the total number of reported material weaknesses for CFO Act agencies was 56 for FY 2025. While progress is being made at many agencies and across the government in identifying and resolving internal control deficiencies, additional work is needed, as the audit has identified, that, at the government-wide level, material weaknesses resulted in ineffective internal control over financial reporting.

Legal Compliance

Federal agencies are required to comply with a wide range of laws and regulations, including appropriations, employment, and health and safety, among others. Responsibility for compliance rests with agency management and compliance is addressed as part of agency financial statement audits. Agency auditors test for compliance with selected laws and regulations related to financial reporting. As a result of this testing, agency audit reports may report instances of noncompliance. The auditor reported that its work on compliance with laws and regulations was limited by the material weaknesses and scope limitations discussed in its report.

Conclusion

Although the federal government has made significant progress in financial management since the passage of the CFO Act more than 30 years ago, challenges remain to realizing the intended financial management reforms of the Act. President Trump has made addressing financial integrity a priority, evidenced by executive orders, to assure that all agencies have sound financial management processes and procedures that protect taxpayer dollars. The issues that the federal government faces today require financial managers to improve both the efficiency and effectiveness of financial management activities, which includes moving toward integrated government operations with standardized business processes, systems, and data. Together with OMB and Treasury, agencies are implementing the tools and capabilities to bring true financial accountability and transparency.

Footnotes

³⁴ The 16 entities include HHS, which received an unmodified (“clean”) opinion on all statements except the SOSI and the SCSIA. (Back to Content)